Home price recovery may test developers’ discipline: S&P

S&P expects residential prices to rise 8%-10% in 2026, but warns that aggressive land bidding could pose long-term risks.

The residential property market is recovering after a steep downturn, but the rebound could test developers’ financial discipline, according to S&P Global Ratings.

S&P said rated developers managed the downturn by trimming investments and strengthening their balance sheets. However, upcoming land auctions could test whether they maintain caution as demand improves.

Hong Kong residential prices fell nearly 30% from 2021 to the mid-2025 bottom, but have since rallied close to 10%.

S&P expects home prices to rise another 3%-5% for the rest of 2026, bringing total price appreciation this year to 8%-10%. For 2027, it expects prices to change by 0% to 3%.

Sales volumes have also improved, with primary home sale transactions reaching 20,540 last year. S&P expects volumes to be slightly higher this year, then settle at 18,000 in 2027 as pent-up demand is gradually absorbed.

Still, S&P said the recovery is likely to be moderate. It noted that traditional supply-demand imbalances may be less pronounced this time, as new private home supply over the next three to four years remains adequate whilst subsidised housing supply is rising.

The ratings agency warned that buying land at inflated prices could become a long-term risk. Competition at land auctions has increased in recent months, with winning bids coming in at a noticeable premium over estimated values.

Investor demand could provide upside to price forecasts. S&P noted that investors accounted for 30% of offerings in a recent property launch.