According to "The Big Bank," Bank of America Securities has raised the target price for Hong Kong real estate stocks by an average of about 10%, with Link REIT being the top pick for catching up

Bank of America Securities' research report indicates that recent interactions with investors have revealed a divergence in market views. Non-local offshore general investors are more optimistic about the outlook for Hong Kong property prices. In contrast, local, mainland, and real estate fund investors are more concerned about whether valuations have fully reflected the situation. Overall, investors seem to be willing to overlook the recent lower yields and predict that the real estate market will enter a cyclical recovery phase for several years.

Against this backdrop, Bank of America Securities has raised the target prices of several real estate stocks by an average of 10% based on the narrowing discount to net asset value, reflecting strong performance in Hong Kong development projects and high-end retail sales. They have also adjusted the earnings per share forecasts for Hysan Development (00014.HK) and Sun Hung Kai Properties (00016.HK) for the fiscal years 2025 to 2028 based on updated project accounting timelines.

In terms of developers, Bank of America Securities is optimistic about CK ASSET (01113.HK) and SINO LAND (00083.HK) due to their higher sensitivity of earnings to property price growth. For rental stocks, they prefer SWIRE PROPERTIES (01972.HK) and HANG LUNG PPT (00101.HK) because of their higher dividend yields and the resilience of mainland luxury retail. However, LINK REIT (00823.HK) is their lagging preferred stock, contrary to market consensus, mainly considering the widening valuation gap with peers (dividend yield reaching 7%) and the short-term challenges from e-commerce already reflected.

Bank of America Securities stated that Hong Kong developers have factored in a 15% to 20% growth in transaction volume for this year and next into their stock prices, predicting that property prices will rise by 10% to 15% over the next two years. However, they identify two major risks: the Hong Kong Monetary Authority has indicated that there is limited room for further cuts to the best lending rate, and the preferential five-year mortgage rates from Hong Kong banks will expire at the end of April. If the bond market does not see two rate cuts before the end of 2026, banks may revert to floating-rate mortgage loan schemes. Additionally, the median monthly income of Hong Kong households has stagnated in the first nine months of 2025, and the number of approved immigration visas in 2025 has declined year-on-year. If this situation continues, it may ultimately limit the potential for further increases in property prices. For Bank of America Securities' ratings and target prices for local real estate and rental stocks, please refer to the accompanying table