Hong Kong Developers and Landlords Anticipate Property Market Rebound Amid Stock Market Surge
Broker: UOB Kay Hian
Date: October 8, 2024
The outlook for Hong Kong developers and landlords appears promising as the stock market’s strong performance is expected to positively impact property prices. A combination of factors, including China’s economic stimulus measures and rate cuts, is set to influence the Hong Kong real estate market, providing opportunities for both developers and landlords.
A Rebound in Property Prices
The Centaline City Leading Index (CCL) has shown a decline of 7.71% year-to-date in 2024, but a potential rebound of 3% is anticipated in the near term. This recovery is expected to be supported by both the rate cuts and China’s proactive economic policies. The correlation between the Hang Seng Index (HSI) and property prices over the past several years suggests that each rebound in the HSI has typically been accompanied by a rebound in property prices.
While Hong Kong’s competitiveness and China’s economic health will largely dictate the long-term sustainability of this recovery, a near-term improvement in home buyers’ sentiment is expected to drive demand, potentially leading to about 4,500 primary transactions in Q4 2024. This would represent a significant increase from the 2,365 transactions recorded in the previous quarter.
Strong Tourist Arrivals Support F&B Sector
During the National Day Golden Week, Hong Kong saw a 24% year-on-year increase in mainland tourists, particularly benefiting the food and beverage (F&B) sector. However, the high exchange rate of the Hong Kong dollar continues to weigh on tourism spending, posing a challenge to the retail sector.
Analysis of Key Listed Companies
Sun Hung Kai Properties (SHKP)
Ticker: 16HK
Recommendation: BUY
Share Price: HK$76.30
Target Price: HK$94.55
Sun Hung Kai Properties (SHKP) remains one of the top picks in the Hong Kong property sector. The company’s recent performance showcases its strong market presence, particularly with its developments like Cullinan Sky, which achieved a sell-through rate of 100%. SHKP is positioned as the best proxy for Hong Kong’s property prices, and the company’s pricing strategy has proven effective, helping it maintain a strong presence in the market.
UOB Kay Hian has maintained a “BUY” rating on SHKP, with a raised target price of HK$103.00, up from the previous HK$94.55. This new target price corresponds to a 40% discount to the net asset value (NAV) of HK$171.91. The dividend yield for FY25/26 is projected to be 4.2%, which is still lower than the historical mean but suggests a positive outlook for investors.
LINK REIT
Ticker: 823HK
Recommendation: BUY
Share Price: HK$39.00
Target Price: HK$45.05
LINK REIT is another major player in Hong Kong’s property landscape, particularly benefiting from the recovery in the F&B sector, with about 30% of its rental income coming from this segment. LINK REIT is expected to see continued gains from improving market conditions, particularly due to the resurgence of tourist arrivals, which support its tenant base in key shopping areas.
UOB Kay Hian maintains a “BUY” recommendation for LINK REIT, with a target price of HK$45.05. The REIT’s strategic positioning within the F&B space and its focus on high-demand retail locations make it a compelling investment as the Hong Kong property market begins to recover.
Near-Term Outlook for Hong Kong Property Market
While challenges remain, particularly in the tourism and retail sectors due to the strong Hong Kong dollar, the outlook for the property market is optimistic. Developers like SHKP and REITs such as LINK REIT are poised to benefit from the expected rebound in property prices, driven by improved sentiment and favorable government policies.
Maintaining a “Market Weight” rating for the sector, UOB Kay Hian sees potential in the market’s near-term recovery, with SHKP and LINK REIT leading the way. For investors, this represents a unique opportunity to capitalize on the recovering market, with favorable returns expected as both property prices and transaction volumes rebound.
