Citi has released a research report stating that the Hong Kong government's Long Term Housing Strategy announced at the end of last month has helped reinforce the bank's positive view on the Hong Kong residential market.
The bank noted that private housing supply is tightening while demand remains resilient. 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 lowered to 12,600 units per year, a 34% reduction from the 2016 to 2025 fiscal year target.
The bank said future new supply will be more concentrated in the Northern Metropolis, with supply in core districts expected to become even tighter. Meanwhile, the government's demand forecast tends to be conservative and may underestimate future household formation. If household size continues to decline, there is significant room for upward revision to official housing demand projections. Additionally, the government's enhanced efforts to attract financial professionals to Hong Kong are expected to bring upside to demand through talent and student inflows.
Citi forecasts that private housing completions will drop to approximately 15,400 units in 2027, and considering land supply from 2023 to 2025, is expected to remain at a similar low level in 2028. Primary market sales rose 10% year-on-year to 14,300 units in the first eight months of this year, and the bank estimates primary sales will rise 3% year-on-year to 21,100 units in 2026.
The bank currently maintains a positive view on the fundamentals of the property market, forecasting both home prices and rents to rise 6% in 2027. Although elevated US interest rates may continue to weigh on property stock performance, Citi believes rental stocks will outperform developers for the remainder of this year, with hopes that retail tenant lease renewal rental levels can improve.
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