Core Viewpoint - The Hong Kong residential market is experiencing a "soft landing," with expectations of a 5% increase in prices for small to medium-sized residential properties by 2026, while luxury property prices are expected to stabilize [1] Group 1: Market Trends - The overall atmosphere of the Hong Kong residential market has improved since 2025, with a significant increase in transaction volume, reaching 51,000 transactions by October 2025, a year-on-year increase of over 20% [1] - The capital price index for small to medium-sized residential properties in Hong Kong showed a 1.4% increase in the first eleven months of 2025 [1] Group 2: Demand Drivers - The primary driver for market recovery is the release of accumulated purchasing power, particularly following the introduction of various tax relief policies in February 2024, which has led to a surge in demand from mainland buyers [2] - In some areas, the proportion of new property sales to mainland buyers has reached as high as 90% [1] Group 3: Inventory and Supply - High inventory levels have been a challenge for the Hong Kong real estate market, but it is expected that the inventory turnover period will decrease to approximately 51.3 months by the end of 2025, returning to levels seen between 2015 and 2021 [2] - By the end of 2026, private residential supply is anticipated to return to normal levels, further shortening the inventory turnover period to about 44.7 months [2] Group 4: Financial Environment - The Federal Reserve's interest rate cuts have positively impacted the Hong Kong residential market by reducing mortgage costs, thereby alleviating financial pressure on buyers and enhancing their purchasing power [2] - Developers are experiencing improved financial conditions due to lower financing costs, allowing for more stable pricing strategies without the need for significant discounts [2] Group 5: Developer Sentiment - The willingness of developers to acquire land has increased, as evidenced by multiple government land sales in the second half of 2025, where sale prices exceeded market valuation estimates by over 30% [3] - The recovery in transaction volumes and declining interest rates have collectively improved the financial health of property developers, leading to a more stable operational environment [3]

Core Viewpoint - Morgan Stanley and experts from Meilian Group believe that Hong Kong's housing prices may have bottomed out due to limited supply, declining mortgage rates, and increased contributions from mainland buyers [1] Demand Aspects - In the first half of 2025, overall transaction volume (both new and second-hand units) increased by 3.9% year-on-year, reaching 29,000 units, driven by the decline in Hibor since May 2025, competitive pricing strategies from developers, and increased contributions from mainland buyers [2] - The relaxation of stamp duty in the 2025/26 budget (only HKD 100) led to a 305% year-on-year surge in sales of properties priced at HKD 10 million and below in the first half of 2025 [2] - The mass market is expected to continue outperforming the luxury market, with Meilian forecasting 18,000 sales of new units in 2025, a 6% year-on-year increase [2] Supply Improvement - Potential supply has peaked, with limited land supply and a decrease in new project completions, indicating the market may enter an upward cycle [3] - In the first five months, completed inventory accounted for over 55% of total sales of new units, compared to approximately 40% in the 2023/24 fiscal year, prompting developers to clear inventory [3] - The discount on new unit prices has narrowed from 12% to 9%, indicating improved demand [3] - The absorption rate for new units improved to 64% in the first half of 2025, compared to 57% in 2024 and 50% in 2023 [3] Price Trends - Housing prices may have stabilized in the first half of 2025, with a year-on-year decline of 1%, which is less than expected, aligning with Morgan Stanley's positive outlook [4] - Meilian expects housing prices to rise by 3% in 2025, while Morgan Stanley estimates a 2% increase for the second half of the year, with catalysts potentially emerging when supply drops below 90,000 units [4] Rental Trends - The rental market remains positive, supported by an influx of talent and students from mainland China coming to Hong Kong [5] - Local demand has been suppressed in the past 2-3 years due to rising mortgage rates and falling housing prices, but this trend may change as local residents may shift from renting to buying [5] - Meilian forecasts a 6% year-on-year increase in rental prices for 2025, with a 1.2% increase in the first half of 2025 [5]