Morgan Stanley: Additional supply in the Northern Metropolis will not change the residential supply-demand landscape in the short term; preference for rental-income stocks.

Morgan Stanley released a research report stating that the new Policy Address and the first Five-Year Plan are broadly in line with the bank's expectations, with no surprises on the housing demand side, and policy focus remaining on Northern Metropolis execution, new supply, and attracting talent and students. The bank believes that additional supply in the Northern Metropolis and rising public housing output should not significantly change the current residential supply-demand landscape in the short term, but recent regulatory developments and interest rate hike concerns may continue to weigh on developers. The bank rates the local property sector as "Attractive," preferring landlord stocks with visible recurring income and active capital recycling, including SWIREPROPERTIES (01972), LINK REIT (00823), and Hongkong Land, all rated "Overweight." The bank noted that the government aims to provide 900 hectares of spade-ready land and 70,000 residential units in the Northern Metropolis over the next five years. Based on a 70:30 public-private split, this implies additional private housing supply of approximately 21,000 units. Following Hung Shui Kiu, the second large-scale land sale pilot project in Fanling North could be launched as early as end-2026. University towns are becoming a new demand driver, with plans for three university towns covering approximately 300 hectares of campus area, and a target of approximately 90,000 non-local students by the 2026/27 academic year. New housing demand from birth-related measures is limited, with the new residential stamp duty exemption cap for eligible families with newborn babies at only HK$20,000. The bank also noted that authorities will submit a bill to allow privatization/restructuring of real estate investment trusts and provide stamp duty exemptions for non-residential assets transferred into listed REITs. At the same time, they will seek dual listing of high-quality overseas REITs in Hong Kong and include REITs in the Stock Connect as soon as possible. If REIT Connect makes progress, Link REIT could be a major beneficiary.