Citigroup (C.US) released a research report stating that the government's Long Term Housing Strategy for 2026, announced at the end of last month, helps reinforce the bank's positive view on Hong Kong's residential market.
The bank noted that private housing supply is tightening while demand remains resilient. The authorities project a housing supply target of 420,000 units over the next decade, including 126,000 private units, meaning the private housing supply target has been cut to 12,600 units per year, a 34% reduction from the 2016-2025 target.
The bank said future new supply will be more concentrated in the Northern Metropolis, and it expects supply in core areas to become even tighter. At the same time, the authorities' demand forecast is on the conservative side and may underestimate future household formation. If household size continues to decline, there is greater room for an upward revision to the official housing demand forecast.
In addition, the government has stepped up efforts to attract financial professionals to Hong Kong, and Citigroup expects talent and student inflows to also bring upside to demand.
Citigroup expects private housing completions to fall to about 15,400 units in 2027. Taking into account land supply from 2023 to 2025, it expects completions to remain at a similar low level in 2028.
In the first eight months of this year, first-hand sales rose 10% year-on-year to 14,300 units. The bank estimates first-hand sales will rise 3% year-on-year to 21,100 units in 2026.
It currently maintains a positive view on property market fundamentals and forecasts both home prices and rents to rise 6% in 2027.
Although high U.S. interest rates may continue to weigh on property stock performance, Citigroup believes landlord stocks will outperform developers for the remainder of this year, on expectations that retail tenant renewal rents can improve.
Its stock picks include Sino Land Company Limited (01972.HK), Wharf Real Estate Investment Company Limited (01997.HK), Link Real Estate Investment Trust (00823.HK) and Sun Hung Kai Properties Limited (00016.HK), all rated "Buy."