Investment Rating - The report maintains an "Overweight" rating for the real estate development and real estate services sectors [6]. Core Insights - The Hong Kong real estate market is experiencing a recovery, with residential prices showing the largest month-on-month increase since April 2025, and a significant year-on-year increase in transaction volumes due to the Lunar New Year effect [1][2]. - The inventory pressure in the residential sector is improving, with the unsold completed inventory decreasing to 23,000 units and the absorption cycle returning to historical norms [3]. - The commercial real estate sector is seeing a rebound in retail sales value and office net absorption, although a full recovery in commercial rents is still awaited [4]. Summary by Sections Residential Market - In January 2026, the Centaline Property Leading Index increased by 2.2% month-on-month, marking the highest monthly increase in the current recovery phase [2]. - The private residential price index showed a month-on-month increase of 0.2% and a year-on-year increase of 3.3% as of December 2025 [2]. - The absorption cycle for completed unsold units has shortened to 14 months, while the cycle for under-construction unsold units is at 50 months, both returning to average levels seen over the past two decades [3]. Rental Market - The private residential rental index reached a historical high, with a month-on-month increase of 0.1% and a year-on-year increase of 4.3% in December 2025 [3]. - The average rental yield for residential units below 70 square meters is 3.35%, which remains above the mortgage cap rate of 3.25% [3]. Commercial Real Estate - The retail sector's sales value for 2025 was HKD 380.5 billion, reflecting a year-on-year increase of 1.0%, marking a recovery from a 7.3% decline in 2024 [4]. - The net absorption of office space reached its highest level since 2018, driven by a rising Hang Seng Index and active IPOs, although the vacancy rate remains high at 17.3% [4]. - Commercial rents are still under pressure, with December rental indices for retail and office spaces showing year-on-year declines of 4.7% and 3.3%, respectively [4]. Investment Recommendations - The report recommends a "Buy" rating for Link REIT (823 HK) with a target price of HKD 50.59, highlighting its focus on essential local consumption and stable growth characteristics [29].