According to Zhitong Finance APP, recently, Morgan Stanley held a conference call with experts Mr. Gordon Tse and Mr. Buggle Lau from Midland Holdings Limited regarding the Hong Kong residential market. They believe that Hong Kong property prices may have bottomed out, supported by the following factors: (1) limited supply; (2) declining mortgage rates; (3) increased contributions from mainland homebuyers.
Compared to the retail and office markets, Morgan Stanley maintains a positive outlook on the residential market and developers.
Among developers, Morgan Stanley is optimistic about SHK PPT (00016, Overweight) and Henderson Land Development (00012, Overweight).
Morgan Stanley's rationale is: (1) high dividend yield; (2) benefits from the decline in Hibor (Hong Kong Interbank Offered Rate) and interest rates; (3) ample saleable resources.
Demand Side:
In the first half of 2025, overall transaction volume (new and second-hand units) increased by 3.9% year-on-year, reaching 29,000 units, thanks to the decline in Hibor since May 2025, competitive pricing strategies from developers, and increased contributions from mainland homebuyers. The 2025/26 fiscal budget has relaxed stamp duty (only HKD 100), leading to a year-on-year surge of 305% in sales of properties priced at HKD 10 million and below in the first half of 2025. In 2025, the performance of the mass market may continue to outperform the luxury market. Midland expects new unit sales to reach 18,000 units in 2025 (a year-on-year increase of 6%).
Supply Improvement:
(1) Potential supply has peaked (see Figure 3), and due to limited land supply and a decrease in the completion of new projects, the market is expected to begin entering an upward cycle. (2) In the first five months, completed inventory accounted for over 55% of total new sales (approximately 40% in the 2023/24 fiscal year). Therefore, developers are clearing inventory. (3) Discounts on new unit prices have narrowed from 12% to 9%, indicating an improvement in demand. (4) In the first half of 2025, the absorption rate of new units improved to 64%, compared to 57% in 2024 and 50% in 2023.
Price Trend:
Property prices may have stabilized in the first half of 2025 (down 1% year-on-year), with the decline being less than expected. This aligns with Morgan Stanley's positive view expressed in the &#34;Insight Report.&#34; Midland expects property prices to rise by 3% in 2025 (Morgan Stanley's estimate for the second half is an increase of 2%). Catalysts may appear when supply drops below 90,000 units.
Rental Trend:
Maintaining a positive outlook. (1) More talents and students from the mainland are coming to Hong Kong for work and higher education. (2) In the past 2-3 years, due to rising mortgage rates and falling property prices, the pent-up demand from locals has been suppressed; they previously preferred renting, but this situation may change. Midland expects rents to increase by 6% year-on-year in 2025 (1.2% in the first half of 2025)
Chart 1: Housing prices fell 28% after peaking in September 2021 and are currently stabilizing (RVD)
<img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/f36af214a68276a5f160de4295c44932.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/f36af214a68276a5f160de4295c44932.jpg"/>
Chart 2: Rising rents support housing prices (RVD)
<img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/94a1ee40766d734533354218a09eccbd.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/94a1ee40766d734533354218a09eccbd.jpg"/>
Chart 3: Potential supply of private residential properties may have peaked - a decrease of 4,000 units quarter-on-quarter in Q2 2025
<img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/a7bd518ef65e3b3521dbae404a10f451.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/a7bd518ef65e3b3521dbae404a10f451.jpg"/>
Chart 4: Hong Kong's rental yield is attractive compared to first-tier cities
<img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/0c5353aaacdc9d8b6951390539624fb5.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/0c5353aaacdc9d8b6951390539624fb5.jpg"/>
Chart 5: The contribution of mainland buyers in the primary market has increased (by value)
<img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/1be1c58dd8b8c8baa232b440c99a8440.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/1be1c58dd8b8c8baa232b440c99a8440.jpg"/>
Chart 6: The decline in mortgage rates reflects the drop in Hibor
<img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/3220571c511022a19cb9256b931996f9.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/3220571c511022a19cb9256b931996f9.jpg"/>

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Morgan Stanley believes that the Hong Kong residential market is warming up and recommends increasing holdings in SHK PPT and Henderson Land Development. Supporting factors include high dividend yields, a decline in Hibor and interest rates, and ample saleable resources. It is expected that the overall transaction volume will increase by 3.9% year-on-year in the first half of 2025, with an increase in contributions from mainland homebuyers and the relaxation of stamp duty stimulating sales. The market will enter an upward cycle, with developers clearing inventory and demand improving

Morgan Stanley: The Hong Kong residential market is warming up! It is recommended to increase holdings in these two stocks