UBS: Hong Kong housing prices are expected to remain roughly stable in the second half of this year through 2027, while four potential risks in the property market have yet to be reflected in developers' stock prices.

Artificial Intelligence (AI) is gradually becoming an important topic affecting Hong Kong's economy. Liang Zhanjia, a property sector analyst at UBS for the Greater China region, stated that the market has not fully reflected four key risks faced by the Hong Kong real estate market, even with the dividend yield differential of property developers exceeding the historical average. In the base case scenario, Liang Zhanjia predicts that housing prices in Hong Kong will remain roughly flat in the second half of 2026 to 2027, which is more conservative than the market consensus expectation of a 5% to 6% increase in 2027. Regarding rent, he anticipates that rents will continue to rise in the short term, but the growth rate will begin to slow starting in 2028, leading to a more cautious view on developers. UBS has conducted scenario analysis to demonstrate how the disruption to employment caused by AI, the deeper integration of the Guangdong-Hong Kong-Macau Greater Bay Area, increased housing supply in the Northern Metropolitan Area, and a slowdown in population inflow will affect key industries. The current four potential risks are not yet reflected in stock prices: 1) No employment recovery: Although GDP growth is expected to reach 3% to 4% from 2024 onwards, new job opportunities have clearly weakened. Since 2023, job opportunities for fresh graduates have decreased by more than 70%, and the youth unemployment rate has remained high at 7% to 8%. 2) Integration of the Guangdong-Hong Kong-Macau Greater Bay Area: Improved transportation and decreased income visibility may accelerate cross-border migration in search of lower living costs, especially against the backdrop of an aging population. 3) Housing supply in the Northern Metropolitan Area: The estimated short-term housing supply shortage is expected to last only four years, far shorter than the previous 12-year upcycle. 4) Population gap: From 2023 to 2025, net population inflow is projected to average only 32,000 per year, well below the government's 2042 urban planning target of reaching a population of 9.6 million, which requires approximately 153,000 people per year. Liang Zhanjia pointed out that due to tight short-term supply, residential rents will continue to see mid-to-high single-digit growth from 2026 to 2027, but rent growth may noticeably slow starting in 2028. Interest rate uncertainty and stricter cross-border investment regulations may limit further increases in housing prices. In terms of office space, the potential job losses triggered by AI may offset the benefits brought by declining supply reserves. The office vacancy rate is expected to remain at 10% to 15%, supporting an average annual rental growth of only 2% from 2025 to 2030. However, industries such as technology, logistics, and education, which successfully diversify the economy, are expected to promote long-term population inflow and housing demand, creating growth opportunities for the Northern Metropolitan Area.