Artificial intelligence is increasingly becoming a key factor influencing Hong Kong's economy. UBS Greater China Real Estate Analyst James Leung stated that with real estate developer dividend yields currently above historical averages, the market has not fully accounted for four critical risks facing the Hong Kong property market.

In his base-case scenario, Leung expects Hong Kong home prices to remain broadly flat from the second half of 2026 through 2027. This outlook is more conservative than the market consensus, which anticipates a 5% to 6% price increase by 2027. On the rental front, he believes rents will continue to grow in the near term but will begin to decelerate from 2028 onward, leading to a more cautious view on developers.

UBS conducted scenario analyses to illustrate how AI-related job disruptions, deeper integration with the Greater Bay Area, increased housing supply from the Northern Metropolis, and a slowdown in population inflows could affect key industry drivers. The bank identifies four potential risks that are not yet reflected in stock prices.

First, a jobless recovery: despite GDP growth of 3% to 4% since 2024, new job creation has weakened significantly. Since 2023, job opportunities for fresh graduates have dropped by over 70%, while youth unemployment remains elevated at 7% to 8%. Second, Greater Bay Area integration: improved transportation links and lower income visibility may accelerate cross-border migration to seek cheaper living costs, especially against a backdrop of population aging.

Third, Northern Metropolis supply: the estimated short-term housing supply shortage is expected to last only four years, a much shorter period than the previous 12-year upcycle. Fourth, a population gap: net population inflows averaged just 32,000 people annually from 2023 to 2025, far below the government's 2042 urban planning target of 9.6 million residents, which requires roughly 153,000 people per year.

Leung noted that due to tight near-term supply, residential rents will continue to see mid-to-high single-digit growth from 2026 to 2027. However, from 2028 onward, rental growth could slow markedly. Interest rate uncertainty and tighter cross-border investment controls may further limit price appreciation. In the office segment, potential job losses triggered by AI could offset the benefits of a declining supply pipeline, keeping vacancy rates at 10% to 15%. This would only support annual rental growth of 2% between 2025 and 2030. Nevertheless, successful economic diversification in sectors such as technology, logistics, and education could drive long-term population inflows and housing demand, creating growth opportunities for the Northern Metropolis.