Archive for category: Misc

In its latest market report, Morgan Stanley predicts that Hong Kong’s residential property market is on the uptrend. The removal of stamp duties, limited supply, cheap valuations and low gearing are key factors contributing to this trend. As a result, regional investors are likely to flock to Hong Kong’s property market over Singapore’s, according to the analysis by Morgan Stanley.

Hong Kong’s residential property prices have dropped 30% from its peak in August 2021. In comparison, Singapore only saw a 2% decrease in residential prices in the first five months of 2025, with trends remaining flat in the last three months. Morgan Stanley anticipates a 2% increase in Hong Kong’s property prices in the second half of 2025.

Praveen Choudhary, head of Hong Kong real estate research at Morgan Stanley, is confident that the bottoming of the Hong Kong residential market will continue due to limited supply, the removal of stamp duties, affordable valuations, and a low gearing environment. The recent decrease in the Hong Kong inter-bank offered rate (Hibor) has resulted in lower effective mortgage rates, which is boosting pent-up homebuyer and investor demand. The strong performance of the stock market has also had a positive impact on overall sentiment in the real estate market.

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The one-month Hibor is used as the benchmark rate by major banks for pricing residential mortgage loans. As the Hibor falls, the effective mortgage rate also drops to approximately 2%, making it easier for buyers to acquire property and easing financial pressure on developers, according to Morgan Stanley.

Strong and sustained demand from the mainland

The contribution of mainland buyers and the full removal of additional stamp duties in February 2024 have helped to stabilize Hong Kong’s housing market. Choudhary points out that the migration of mainland Chinese into Hong Kong is expected to further boost overall demand in the coming months. In April 2025, mainland buyers purchased around 1,200 residential units, higher than the average of 800 units per month in the first quarter of the year. In the first four months of 2025, mainland buyers acquired 3,782 units, a 7.6% decrease from the previous year, and made up 21% of the total sales volume in the same period. Choudhary believes that mainland buyers are attracted to the Hong Kong market due to higher rental yields of 3.5%-4%, compared to 1%-2% in Tier-1 cities in China. The full removal of additional stamp duties in February 2024 has also led to an increase in demand from non-locals.

The Hong Kong government’s efforts to attract talent are expected to support the housing market. In the first quarter of 2025, close to 27,000 visa applications were approved, a 20% increase from the previous year. This trend is expected to continue, which will likely translate into demand for at least 2,700 units, or 16% of the full-year primary volume in 2024.

The bottoming of the Hong Kong residential market

Morgan Stanley predicts that the recent performance of Hong Kong’s residential market is the beginning of a long cycle as the city is structurally an undersupplied market and housing affordability is back to 2011 levels. “While it may be early, there are several reasons to be optimistic that we could be at the onset of an upcycle that could last four to five years,” says Choudhary.

However, headwinds such as a high unsold inventory and rising unemployment levels may temper the overall performance of the residential market. There were approximately 22,654 unsold units as of the first quarter of 2025, the seventh consecutive quarter that the market has recorded more than 20,000 unsold units. Centaline, a Hong Kong property agency, expects this number to surpass 23,000 units by the end of the second quarter of 2025 due to declining sales and a slower pace of project launches by developers. The Wong Tai Sin district, which includes the Kai Tak area, has the highest number of unsold units at 5,200, followed by Tseung Kwan O with 2,200 units, and Tuen Mun with 1,900 units.

At the same time, unemployment in Hong Kong rose to 3.4% in May, representing an increase of 0.1% from the previous month. Unemployment has risen for the second consecutive month. “We see a downside risk to home prices if the unemployment rate rises further due to a weakening macroeconomic environment,” warns Choudhary.

Hong Kong more attractive than Singapore

Hong Kong’s residential market has performed better than expected in light of market conditions. Prices have fallen by 1.5% year-to-date, which is marred by expectations of a steeper decline, according to the investment bank. While prices are expected to continue dropping in the first half of 2025, Morgan Stanley predicts a 2% increase in the second half of the year. It maintains its overall year-on-year price forecast of flat growth unchanged.

Property prices in Hong Kong have outstripped those in Singapore from 2012 to 2018. Despite private residential prices in Singapore experiencing a 50% increase over the past six years, property prices in Hong Kong dropped by 30% during the same time frame. “We find Hong Kong’s property prices relatively more attractive compared to Singapore due to the price gap, coupled with the complete removal of all additional stamp duties on purchases,” says Choudhary. In Singapore, foreign buyers are subject to a 64% additional stamp duty, which has effectively reduced overall investment demand from overseas buyers. Additionally, Hong Kong is expected to benefit from an “unprecedented” low Hibor rate environment, which is likely to push the effective mortgage rate below 2%, while mortgage rates in Singapore are between 2%-2.3%.