To The Moon

Morgan Stanley has released a research report upgrading its view on Hong Kong's property sector to "attractive," anticipating that three key segments—Hong Kong residential property prices, Central office rents, and Hong Kong retail sales—will achieve year-on-year growth simultaneously for the first time since 2018. Among these three sectors, the firm is most optimistic about the residential property market, followed by office and then retail. In terms of stock selection, the firm recommends increasing holdings in SHK PPT (00016), HENDERSON LAND (00012), CK ASSET (01113), HANG LUNG PPT (00101), and SWIREPROPERTIES (01972), with target prices of HK$120, HK$36, HK$47, HK$10.7, and HK$23, respectively. Regarding the residential sector, the firm believes that after a 30% decline since 2018, prices bottomed out in 2025 and are forecast to rise by 10% in 2026, with a further increase expected in 2027. This is driven by the government's removal of stamp duties for foreign and mainland Chinese buyers in February 2024, which is expected to encourage property purchases by mainland clients. A significant increase in immigration from mainland China (reaching 140,000 annually post-pandemic, doubling the 70,000 per year average from 2012-2019) is contributing to positive population growth. Last year's strong stock market performance, with the Hang Seng Index rising 28% in 2025, has also boosted market sentiment. For the office sector, although vacancy rates remain high, the firm anticipates a market recovery, forecasting a 3% rise in Central office rents this year due to increased demand for high-quality office space from end-users, primarily asset managers, hedge funds, and wealth management firms. Recent major transactions, pre-leasing activity, an active IPO market, and increased transaction volumes are all seen as positive indicators. For Hong Kong retail sales, the firm projects 3% year-on-year growth for the year, primarily driven by an increase in tourist arrivals. However, the firm expresses concerns about the ongoing rise in online retail sales and the competitive challenges posed by cheaper products and services available in Shenzhen. Additionally, the expansion of duty-free sales in mainland China presents a potential source of pressure.