Hong Kong’s property recovery could be more robust than many think

A wave of bullishness is sweeping through Hong Kong’s real estate market. A report by S&P Global Ratings on May 5 said an “upside surprise” could materialise. One of the catalysts for a stronger-than-expected recovery was evidence of more competitive bids at residential land auctions in recent months. S&P said, “Hong Kong has become the first major city in China whose property market has bottomed. That could attract developers from mainland China looking to secure new projects”. More aggressive bidding could test the financial discipline of developers as “replenishing land will be crucial for developers to fortify their market position and support long-term growth after a period of muted acquisitions”. In addition, S&P pointed to the strong role of investors at recent project launches. The removal of property cooling measures and higher rental yields than in China’s first-tier cities have made Hong Kong property attractive to mainland buyers. Morgan Stanley also believes the strength of the recovery in the housing market is being underestimated. In a report on May 3, it revised its forecast for growth in secondary home prices this year from 10 to 12 per cent. It said Hong Kong would benefit from “tailwinds from capital and talent coming from the Middle East and the mainland”. In a sign of just how bullish Morgan Stanley is, one of the risks it identified was the reintroduction of cooling measures. This is unlikely to happen given that prices are recovering from three straight years of decline and inventory levels are still relatively high. Even so, the recovery has gained sufficient traction to move the needle and become a key growth driver for the broader economy, an unthinkable prospect a year ago. On May 6, Moody’s Ratings said, “a continued recovery in the property market supported improving consumer confidence as reflected in a sharp pickup in retail sales”. Hong Kong’s economy expanded by a much stronger-than-anticipated 5.9 per cent in annualised terms last quarter, with the “wealth effect” stemming from the dramatic revival of the city’s capital markets amplifying the improvement in domestic demand. Even the outlook for the commercial property market, where the recovery is uneven, is brightening. MSCI said Hong Kong was the market “worth watching, being at a much earlier stage” in the recovery. Rents for premium grade A offices in the Central business district grew at their fastest clip in quarterly terms last quarter since the third quarter of 2010. Non-bank financial services firms have emerged as a new and stronger source of leasing activity as Hong Kong’s role as China’s gateway to international finance reinvigorates the office market. “While traditional banks are focusing on streamlining operations through digitalisation, emerging financial firms are expanding and upgrading. This is driving demand for premium, high-specification and ESG-compliant grade A office space,” CBRE said. To be sure, there is ample cause to be sceptical about the strength of the recovery in Hong Kong’s property sector. The recovery in the office market is confined to core business districts, with little sign of a sharp rebound outside Central. “Leasing demand from other sectors has yet to recover, leaving noncore business areas under sustained pressure,” said Sam Gourlay, head of office leasing advisory at JLL in Hong Kong.[end print cut] Furthermore, occupier and investment markets in several other leading economies across Asia are much stronger. Although commercial property transaction volumes in Hong Kong last quarter rose more than 40 per cent in annualised terms to US$1.6 billion, they stood at US$4.8 billion in South Korea despite a 29 per cent decline, according to data from JLL. Recovery sceptics might say it is easy to be more optimistic about Hong Kong given how dire things were up until a year or so ago, but they are missing the forest for the trees. The fact that the bull case for Hong Kong property, especially the residential sector, is credible and more compelling is reason enough to believe the sector could outperform expectations. Shifts in geopolitics and global commercial real estate are working in Hong Kong’s favour. Some of the most attractive markets for cross-border investors in the Asia-Pacific are ones that are more exposed to the energy shock triggered by the war in Iran. Since the start of this year, Australia has had to contend with a sharper-than-expected tightening in monetary policy that has weighed on real estate transaction volumes and fuelled concerns about a period of stagflation. In India, the economic fallout from the country’s heavy dependence on energy imports from the Middle East has caused a sharp deterioration in sentiment in the property sector. On the other hand, Hong Kong is more insulated in part because of its unique position as China’s most important financial gateway. The results of a CBRE survey last month revealed that 43 per cent of respondents believed the war would have a positive impact on sentiment. Moreover, the recovery in the city’s property market is supported by a strong revival in interest in the office sector globally. Offices accounted for 27 per cent of commercial property transaction volumes worldwide last quarter, up from 22 per cent in the first quarter of 2025, according to JLL data. It has been easy to be bearish on Hong Kong real estate in the past several years. That a bullish view is now increasingly defensible shows how far Hong Kong has come and suggests the recovery could be stronger than many anticipate.

Hong Kong’s property recovery could be more robust than many think

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}A variety of local factors as well as shifts in geopolitics and global commercial real estate are working in Hong Kong’s favour

A variety of local factors as well as shifts in geopolitics and global commercial real estate are working in Hong Kong’s favour