What will drive Hong Kong’s property market recovery in 2025

It will be driven by lower interest rates, increased demand, and a rebound in tourism.

The property market in Hong Kong is set for a strong recovery in 2025, with residential prices projected to rise by 3% and retail sales value expected to grow by 5%, according to a report by CGS International.

A major driver for the residential market is the anticipated decline in interest rates. With the U.S. Federal Reserve expected to cut rates by 25-50 basis points in 2025, mortgage costs in Hong Kong are likely to decrease, making housing more affordable for both homebuyers and investors. 

Residential rents are also expected to increase by 6% in 2024 and 4% in 2025, supporting the overall residential market.

In addition, the relaxation of previous restrictions on residential transactions is expected to encourage more buyers to enter the market. Home prices are expected to rise by 3% in 2025, with primary home sales projected to grow by 6%, continuing the growth trend from 2024.

The retail sector, which has faced difficulties in recent years, is also expected to rebound in 2025. Retail sales value is forecast to grow by 5%, driven by the return of mainland Chinese tourists following the resumption of multi-entry visas for Shenzhen residents.

Visitor arrivals are expected to rise by 28%, providing a much-needed boost to Hong Kong’s retail market.

Key developments, such as the opening of Kai Tak Sports Park, which will host major events and attract more visitors, will further support retail growth. The combination of increased tourism and event-driven retail activity will contribute to higher consumer spending and retail sales.

However, the office rental market remains under pressure. Demand from both Chinese and foreign corporations has been weak, as economic growth in China remains slow and Hong Kong’s capital market performance is modest.

Additionally, the increase in Grade-A office supply will keep vacancy rates high and continue to put downward pressure on rental prices. Office rents are expected to decline by 5% annually through 2026.

For investors, SHKP has been named CGS's top pick amongst developers, with strong sales in large-scale residential projects and solid recurring income from properties across Hong Kong, China, and Singapore.

In the retail sector, Link REIT and Wharf REIC were favoured due to their strategic locations and strong exposure to tourism-driven retail, positioning them to benefit from the expected increase in visitor arrivals in 2025.

Hong Kong property stocks are currently trading at a significant discount to net asset value (NAV), providing attractive opportunities for investors.

The market has overlooked key positive factors, including the relaxation of stamp duties for non-local buyers and the Hong Kong government’s efforts to attract mainland Chinese and foreign talent. As a result, many property companies are expected to see improved cash flow and dividend yields in 2025.

Key risks for the property market include unexpected interest rate hikes, slower-than-expected economic growth, a weaker RMB affecting retail sales from mainland Chinese visitors, and potential impairments in property projects.

On the other hand, favorable mortgage financing policies, higher-than-expected tourist arrivals, and successful asset disposals could act as catalysts for further market upside.