According to HSBC Research in "The Big Banks," property buyers are expected to gradually return, preferring New World Development and KERRY PPT

AASTOCKS
2025.05.23 05:08

HSBC Global Research published a report predicting that the real estate and integrated corporate sectors will continue to outperform the market, as the resilience of the Hong Kong real estate market continues to strengthen. Low investor expectations, steadily improving business fundamentals, and good market liquidity are likely to support the sector. The one-month Hong Kong Interbank Offered Rate (HIBOR) has significantly decreased from 4.6% at the end of 2024 to 0.67% yesterday (22nd). If this low interest rate can be sustained, it may significantly improve the sector's profit outlook. The bank expects the equilibrium level of the current one-month HIBOR to be around 2.75%, with risks skewed to the downside. HSBC Research sees some increasingly positive factors in the sector—homebuyers are gradually returning and establishing expectations for downward trends in interest rates, while developers are adjusting sales strategies to improve profit margins. The sector may see upward revisions in earnings forecasts in the coming months due to lower borrowing costs.

HSBC Research pointed out that with the significant decline in HIBOR and savings rates, the residential market is expected to receive more support, as homebuyers are resetting their expectations for mortgage rates. HSBC's economic team expects interest rate cuts in 2025 and 2026 to be no more than 75 basis points, and more users are likely to shift from rental properties to purchasing properties, supported by the recovery of the cost of carry. Housing rents have been steadily rising. Since the interest rate cut in September 2024, housing prices have slightly decreased by 0.4%, compared to a decline of about 27% since early 2022.

HSBC Research anticipates that development will place greater emphasis on deleveraging, as short-term inventory levels are high. However, they may price less aggressively or moderately increase prices to improve profit margins. Among many developers, the bank believes that Sun Hung Kai Properties (00016.HK) is one of the few companies with good profit visibility and dividend certainty, while KERRY PPT (00683.HK) may see a profit recovery supported by the sales performance of high-end residential projects in Hong Kong and Shanghai.

The bank's ratings and target prices for local real estate stocks are listed as follows:

Company | Investment Rating | Target Price (HKD)

Sun Hung Kai Properties (00016.HK) | Buy | 109.6

KERRY PPT (00683.HK) | Buy | 22.1

Cheung Kong Holdings (01113.HK) | Hold | 33

Hang Lung Properties (00012.HK) | Hold | 24.6

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