UOB Kay Hian has released a research report stating that new regulations on outbound investment are likely to dampen investment demand from mainland China, but will not affect professionals working or living in Hong Kong. Momentum in the residential property market remains strong. A recovery in retail sales is supporting a stabilization in rents. The brokerage maintains its "Market Weight" rating on the Hong Kong property sector. It reiterates its forecast for a 7% increase in residential property prices. It has raised its retail sales growth forecast from 2.5% to 5%.
The recent pullback in property stocks has created a buying opportunity.
Its top picks are Sun Hung Kai Properties Ltd. (HKEX: 00016) and Link Real Estate Investment Trust (HKEX: 00823), with target prices of HK$143.8 and HK$44.3 respectively, both rated "Buy".
UOB Kay Hian noted that the State Council's issuance of the "Regulations on Outbound Investment" (Decree No. 837) on June 1st, which for the first time brings individual residents under the regulatory framework for outbound investment, requiring investors to complete approval/filing, information reporting, and cross-border fund registration for eligible overseas transactions, has raised market concerns about the funding sources of mainland Chinese buyers. In the first four months of 2026, buyers registered with Mandarin pinyin names accounted for approximately 28% of Hong Kong residential transactions, with the brokerage estimating their share in the primary market to be even higher, at around 40%.
Currently, the main funding sources for mainland buyers purchasing Hong Kong property include offshore income, the annual US$50,000 foreign exchange quota, and one-time asset transfers related to obtaining permanent residency overseas. While short-term uncertainty exists, this is conducive to a healthy recovery in the Hong Kong residential market. It is worth noting that current policies do not permit the use of the annual US$50,000 foreign exchange quota for overseas property purchases. The brokerage actually expects regulations on individual investment in overseas real estate to be further tightened.
However, support for mainland professionals working in Hong Kong to purchase homes for self-occupation should continue, and dedicated foreign exchange channels may be established. Therefore, the brokerage believes this policy will continue to support a healthy recovery in the Hong Kong market. Considering the strong momentum of the fundamental recovery, it reiterates its forecast for a 7% increase in property prices for 2026.
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