Hong Kong property upswing poised to hold despite interest rates risk: Moody’s

Hong Kong’s residential property market recovery is unlikely to be derailed by a potential increase in interest rates amid the Middle East conflict, as demand is supported by professionals relocating to the city and surging rents, according to Moody’s Ratings. At the same time, the moribund office and retail property sectors were showing signs of improvement on the back of leasing activity despite continued headwinds, the credit-rating agency said in a commentary released on Monday. “We expect residential prices to increase in 2026, supported by lower mortgage rates, demand from talent inflows into Hong Kong and homebuyers from mainland China,” it said. Moody’s is the latest group to forecast further gains in the city’s property segments, following Morgan Stanley’s upgrade of residential price estimates to a 12 per cent rise this year from 10 per cent previously. Prices of lived-in homes rose to a 28-month high as of March, according to the latest official data, sustaining a recovery that began 11 months ago and delivering a cumulative gain of about 9.2 per cent. From the peak in September 2021, however, prices were still down by more than 21 per cent. Overall home sales climbed 16.7 per cent month on month to 7,368 in April, the highest since April 2024, when 8,551 units were sold, government data showed. The sales value in April increased about 15.4 per cent over March to HK$63.67 billion (US$9.4 billion). “Lower interest rates and relaxation in Hong Kong’s mortgage rules since October 2024 have supported housing demand,” Moody’s said. “Home prices have been further helped by reduced transaction costs, including a higher stamp duty concession threshold introduced in the 2025-26 government budget. “Additionally, the pool of potential homebuyers from mainland talent scheme arrivals has expanded, many of whom are transitioning to ownership from renting because rents have increased over the past three years.” Mainland Chinese buyers snapped up 5,777 Hong Kong homes in the first four months of 2026 – equal to more than 41 per cent of last year’s total transactions. The pace of buying picked up sharply in April, when mainland Chinese registrations rose nearly 48 per cent month on month to 1,892 deals, the highest level in two years. Transaction value climbed nearly 31 per cent to HK$18.9 billion, a 17-month high. Purchases in the first four months reached HK$61.6 billion, equal to 45 per cent of last year’s HK$137.9 billion total, according to data compiled by Midland Realty from Land Registry records. The figures were based on the use of Putonghua pinyin names in official records, though some buyers may hold Hong Kong permanent residency. The higher demand was buoyed by rents, which hit another record in March, extending a run that began in February 2023, according to government data. The official rental index rose about 0.6 per cent month on month in March, setting a record for the fifth straight month. “We expect that developers will continue to price competitively for large-scale mass-residential projects to support sales volumes amid macroeconomic and geopolitical uncertainties,” Moody’s said. “Contracted sales levels will improve but average property development margins will remain significantly lower at around 20 per cent or below, compared with historical levels of 30 per cent or above.” Moody’s also estimated that the aggregated rental income decline of its rated Hong Kong office landlords and developers would narrow to 3 per cent over the next 12 to 18 months from 5 per cent between 2023 and 2025. “Office demand started improving in the past year, driven by renewed capital market activities, including initial public offerings,” it said. “Global geopolitical tensions are likely to also increase demand for investments and wealth management in Hong Kong.” With new office supply remaining high, averaging 93,500 square metres this year and next, vacancy rates would remain elevated, Moody’s added. It said rated Hong Kong landlords’ rental income from retail properties was tipped to be largely flat this year, “but companies that have significantly upgraded their properties will generate higher rental income growth”. Hong Kong’s retail sales rose 12 per cent in the March quarter from a year earlier.