A recovery is underway in Hong Kong's real estate market, presenting opportunities to identify outperforming segments, according to a research report from BOCOM International.

The firm anticipates that primary residential transaction volumes could challenge a 13-year high. It forecasts a potential increase of over 10% in overall residential property prices for the year, with a possibility of returning to previous peak levels within two to three years.

For the office market, rents in core areas such as Central and Tsim Sha Tsui are expected to rise by 5-15% this year, while non-core areas are projected to remain stable.

Concurrently, the notable recent improvement in the retail market is likely to drive a positive shift in renewal rents for retail properties over the next two years.

BOCOM International maintains a leading rating on the Hong Kong real estate sector. The expectation of margin expansion could lead to upward revisions in earnings forecasts, and the sector has room for further valuation upside. The firm favors the leading local developer SHK PPT (HKEX: 00016), maintaining a Buy rating.

Regarding mainland China's property market, BOCOM International notes the sector continues to find a bottom amid sustained policy support. Looking ahead to the second half of the year, the decline in new home sales is expected to gradually narrow, with the inflection point in inventory offering hope.

Simultaneously, price inflection points have emerged in some first-tier and key cities, suggesting second-hand home prices may be bottoming out.

The firm is optimistic about leading developers with reasonable valuations and land reserves in first- and second-tier cities, including CHINA RES LAND (HKEX: 01109) and YUEXIU PROPERTY (HKEX: 00123), both rated Buy.