Citibank: Raises 2026 Hong Kong real estate price increase forecast to 12%, retail recovery bullish for property stocks outlook

According to a Citigroup research report, Hong Kong retail is expected to lead in the second half of 2026 after a strong first half, with retail property rents predicted to remain steady in 2026. In addition, new building transactions in the first half increased by 34% year-on-year to a 22-year high, with developers' sales rising by 95%. With the number of units available for sale at a four-year low, the bank has raised its forecast for 2026 property price growth from 8% to 12%. With retail outlook better than expected, the strong performance of residential and Central office properties is in line with market expectations. The bank's preferred order for the second half of 2026 is retail, followed by Central office properties, residential properties, and then other office properties. Their top picks are SWIREPROPERTIES (01972), LINK REIT (00823), and SHK PPT (00016). The bank estimates that Hong Kong retail sales in 2026 will exceed HK$400 billion, benefiting from inbound tourism, stable non-discretionary consumption, strong demand for luxury goods, local economic expansion, and the strengthening of the Renminbi against the Hong Kong dollar. Due to retail sales leading rent by approximately 8 months and rent adjustments by 12-18 months, the bank expects retail rents to recover in the second half of 2026 after 13 consecutive months of retail sales growth. Considering the end of the high lease renewal cycle in 2026, the bank expects retail rent adjustments at shopping malls to bottom out in 2027. Major mall operators have an occupancy rate of over 97%, with positive rent adjustments seen at SWIREPROPERTIES, Hong Kong Land, and Henderson Land (00014). To capitalize on the retail recovery, the bank prefers SWIREPROPERTIES, LINK REIT, and adopts an opportunistic strategy towards WHARF REIC (01997). The report notes that new property transactions hit a 22-year high in the first half of 2026, while second-hand transactions reached a 5-year high. In the first half of July, first-hand unit transactions fell by 60% month-on-month, while second-hand registrations fell by 33%. The bank attributes this to cyclical factors: (1) slowing new launches; (2) stock market adjustments; (3) buyers awaiting clarity on Chinese overseas investment restrictions, which may require 1-2 months to stabilize; (4) narrowing bargaining space; (5) seasonality. Despite recent market adjustments, the bank believes that structurally, limited supply supports property prices. With an annual completion volume of 15,000-16,000 units in 2026/27, and an average annual land supply of 15,400 units in the 2022-26 fiscal year, along with a four-year low in available units and a two-year low in total inventory, demand remains intact. Among residential-focused stocks, the bank prefers SHK PPT, given its ample sales channels and prospects for per-share dividend growth alongside profit expansion.