According to a research report, Citigroup has updated its outlook for Hong Kong's property market. The bank anticipates a strong retail performance in the first half of 2026, leading the market in the second half, and forecasts retail property rents to remain flat for the year. Additionally, new home transaction volume in H1 reached a 22-year high, up 34% year-on-year, while developer sales surged by 95%.
With saleable units at a four-year low, the bank has raised its 2026 property price growth forecast from 8% to 12%. Given the better-than-expected retail outlook, the strength in residential and Central office markets aligns with market expectations. For the second half of 2026, the bank's preferred sector order is retail first, followed by Central offices, residential, and then other office spaces.
Top stock picks are Swire Properties Ltd (01972), Link REIT (00823), and SHK PPT (00016). The bank estimates Hong Kong's retail sales will exceed HKD 400 billion in 2026, benefiting from tourist arrivals, stable non-discretionary consumption, robust luxury demand, local economic expansion, and a strong RMB/HKD exchange rate.
As retail sales lead spot rents by approximately 8 months, and further lead rental adjustments by 12 to 18 months, the bank expects retail mall spot rents could begin to recover in the second half of 2026, following 13 consecutive months of retail sales growth. Considering the high renewal rent cycle concludes in 2026, the bank anticipates the adjustment in mall retail rents will bottom out starting in 2027.
Major landlords' mall operations are at over 97% occupancy, with positive rental adjustments already seen for Swire Properties Ltd, Hongkong Land, and Hysan Development (00014). To capture the retail recovery, the bank favors Swire Properties Ltd and Link REIT, and suggests an opportunistic strategy towards Wharf REIC (01997).
The report notes new home transactions in H1 2026 hit a 22-year high, while secondary transactions reached a 5-year high. However, primary unit sales in the first half of July fell 60% month-on-month, and secondary registrations dropped 33%. The bank attributes this to cyclical factors: (1) a slowdown in new project launches; (2) stock market adjustments; (3) buyers awaiting clarity on China's outbound investment regulations, which may require 1-2 months to stabilize; (4) narrowing negotiation room; and (5) seasonality.
Regarding property prices, despite recent market adjustments, the bank believes structural support comes from limited supply. The completion volume for 2026/27 is 15,000-16,000 units annually, with average annual land supply from FY2022-26 at 15,400 units. Saleable units are at a four-year low, total inventory is at a two-year low, and demand remains intact. Among residential-focused stocks, the bank prefers SHK PPT due to its ample sales pipeline and the prospect of rising dividends per share alongside profit expansion.
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