Investment Rating - The industry rating has been upgraded from "Neutral" to "Outperform" [1][13] Core Insights - The recovery of the Hong Kong real estate market is expected to be a gradual process, with different asset sub-sectors recovering at different rates. The residential sector is anticipated to lead the recovery, followed by quality retail assets and core office spaces [1][8] - Key catalysts for the market recovery include improvements in macroeconomic uncertainty, significant policy easing, and a return of fundamental demand drivers such as demographic trends [5][21] - The report highlights that the residential sector is poised for a rebound, with rental levels expected to rise by approximately 3-5% in 2025, and property prices projected to increase by 3-5% in 2025, 5% in 2026, and 5% in 2027 [5][12] Summary by Sections Investment Highlights - The report emphasizes the importance of selecting the right sub-sector in the Hong Kong real estate market, indicating that the recovery will not be a single event but a phased process targeting different segments [8][20] - The report identifies Sun Hung Kai Properties (16 HK) and Link REIT (823 HK) as preferred investment targets, expecting both to benefit from the sector's recovery and multiple catalysts in the next 1-2 years [1][13] Market Trends and Drivers - The report notes that the Hong Kong real estate market is experiencing a turning point, with several important catalysts indicating that the market is at or near a reversal point [5][20] - The residential sector is expected to see a significant rebound driven by sustained population inflow, which will continue to support housing demand, particularly in the rental market [5][21] - Retail properties are also on a recovery path, supported by stabilizing local consumer sentiment and an increase in inbound tourists, although the growth rate is expected to be more moderate compared to residential properties [5][12] Valuation Overview - The report discusses the potential for asset net value (NAV) expansion and valuation multiple expansion as key drivers for stock price appreciation in the real estate sector [12][11] - The anticipated recovery in rental income and asset prices will directly impact companies' NAV estimates, providing a solid foundation for stock price increases [12][11] Company-Specific Insights - Sun Hung Kai Properties (16 HK) is highlighted as a key beneficiary of the residential recovery, with expectations of improved sales performance and profit margins due to high absorption rates and rising average selling prices [14][15] - Link REIT (823 HK) is positioned as a defensive, high-yield investment choice, expected to benefit from potential interest rate cuts and inclusion in the Hong Kong Stock Connect, which could attract new capital inflows [16][17]

Core Viewpoint - Sunshine Real Estate Fund (00435) reported a property portfolio occupancy rate of 89.2% as of September 30, 2025, remaining stable compared to the previous quarter [1] Group 1: Occupancy Rates - The occupancy rates for office and retail properties were 89.7% and 88.2%, respectively [1] - The occupancy rate for the Daxin Financial Center was maintained at 90.6% with a current rent of HKD 36.1 per square foot [1] - The occupancy rate for Strand 50 in Sheung Wan improved to 85.5%, while the occupancy rate for Yunsan Building decreased to 80.2% due to transitional vacancies from tenant relocations [1] - In Kowloon, the occupancy rate for Fengyi Center rose to 96.4%, indicating its popularity as a beauty service hub [1] Group 2: Rental Rates - The overall current rent for the property portfolio is HKD 43.0 per square foot, with a 9.0% negative growth in renewal rents during the review quarter [1] - The retail property Upstream Center Shopping Mall achieved an occupancy rate of 87.8% with a current rent of HKD 104.1 per square foot [1] - The occupancy rate for New Town Plaza Phase 1 remained unchanged at 87.1%, with a current rent of HKD 53.2 per square foot [1]

Summary of Key Points from J.P. Morgan's Expert Meeting on Hong Kong Property Sector Industry Overview - **Industry**: Hong Kong Property Sector - **Expert**: Mr. Joseph Tsang, Chairman of Jones Lang LaSalle (JLL) Hong Kong Core Insights Residential Property - JLL forecasts a **5% decline** in home prices for mass units and **5-10% decline** for luxury units in 2025, primarily due to oversupply and financial pressures on developers [1][4] - JLL expects home prices to stabilize in 2026 (up or down **1-2%**) if HIBOR remains low and geopolitical shocks are absent [1][4][8] - J.P. Morgan's more optimistic forecast anticipates a **3-5% rebound** in home prices in 2026 if certain conditions are met [1][4] - Rental growth is expected to be **0-5%** in 2025 due to an influx of new talent and students [1][4] Office Market - JLL predicts **5% decline** in Grade-A office rents and **5-10% decline** in capital values in 2025, with high vacancy rates (13.2%) persisting [1][4][13] - Rising IPO activity may stimulate demand, but insufficient to reverse current trends [1][4][13] - Tenants prefer newer office buildings with ESG specifications, leading to pressure on older assets [1][4][13] Retail Sector - Retail rents and capital values are expected to drop **5-10%** in 2025, but substantial corrections have already occurred (high-street shops are **72% below peak**) [1][4][18] - JLL anticipates a stabilization of retail rents in 2026, supported by active leasing momentum [1][4][18] - Retail assets yielding **~6%** are attracting strong buyer interest, indicating a potential floor for valuations [1][4][5] Additional Considerations - **CRE Risks**: Overall debt associated with commercial real estate (CRE) risks may exceed **HK$400 billion**, with 34% classified as high risk [1][5][16] - **Mainland Chinese Buyers**: They account for **~50%** of homebuyers in urban districts, significantly influencing market dynamics [1][10] - **Government Response**: While the government is aware of the CRE situation, no comprehensive strategy has been implemented yet [1][16] Investment Recommendations - Top picks in the sector include: - **Swire Properties**: Improving China retail and potential buyback - **Link REIT**: Improving HK retail and Stock Connect - **Wharf REIC**: Stabilizing HK discretionary retail - **Henderson Land**: Stabilizing HK residential market with high yield [1][5] This summary encapsulates the key insights and forecasts regarding the Hong Kong property sector as discussed in the expert meeting, highlighting potential investment opportunities and risks.

Group 1: Residential Market - The Central Plains CSI (Residential Price Index) reported 50.78 points, down 1.46 points from last week’s 52.24, indicating a decline for two consecutive weeks totaling 1.54 points, yet remaining above the 50-point threshold, suggesting short-term price stabilization without signs of decline [1] - The Central Plains CSI (Residential Rent Index) reported 57.63 points, down 0.04 points week-on-week, marking a total decline of 0.29 points over three weeks, but still above the 50-point level, indicating sustained high rental prices with potential for further increases during the summer leasing peak [1] Group 2: Commercial Market - The Central Plains CSI (Shop Price Index) reported 42.03 points, up 1.26 points week-on-week, while the Central Plains CSI (Shop Rent Index) reported 41.3 points, up 0.67 points, indicating stability in the shop sales and rental market without signs of recovery [1] - The Central Plains CSI (Industrial Price Index) reported 41.43 points, up 6.14 points week-on-week, and the Central Plains CSI (Industrial Rent Index) reported 44.93 points, up 5.8 points, suggesting a slight improvement in the industrial property market, although concerns remain due to the government's recent decision to halt bidding for modern multi-storey industrial land in Yuen Long and Hung Shui Kiu [2] - The Central Plains CSI (Office Price Index) reported 28.50 points, down 1.19 points week-on-week, and the Central Plains CSI (Office Rent Index) also reported 28.5 points, down 1.19 points, indicating a continued downward trend in the office market, although a new initiative encouraging the conversion of commercial buildings into student dormitories may provide long-term support [2]

Group 1 - The Asia-Pacific region continues to demonstrate strong dominance in the global investment market, playing a key role in overall capital flows, with Singapore, Japan, and Hong Kong ranking among the top ten capital exporters globally [1] - In terms of cross-border capital flows, Japan is among the top five existing asset investment destinations, while Australia ranks eighth, with Japan's market activity remaining above the average level of the past five years [1] - The report indicates that the Asia-Pacific region is still the most attractive area for land and development, with seven out of the top ten markets coming from this region, and China dominating cross-border activities with an 80% share [1] Group 2 - The multifamily sector benefits from strong demand in the U.S. and has become the most favored asset class globally, while office properties remain the most sought-after investment in the Asia-Pacific region, followed by industrial and retail assets [1] - The overall economic outlook for the Asia-Pacific region remains positive, although market performances vary, with little change in economic forecasts for mainland China, Hong Kong, India, and Australia, while market sentiment has weakened in Singapore, South Korea, and Japan [1] - Southeast Asian investors are increasingly active in the Hong Kong commercial real estate market, driven by attractive asset valuations and strong demand in the education sector, with transaction volumes recovering compared to last year due to government support policies and a more accommodative interest rate environment [2]