Citibank: Raise the forecast for the increase in Hong Kong property prices in 2026 to increase by 12%, and retail recovery will benefit the prospects of good real estate stocks

The Zhitong Finance App learned that according to the Citigroup research report, retail sales in Hong Kong are expected to lead in the second half of the year after being strong in the first half of 2026, and retail property rents are predicted to remain flat in 2026. Furthermore, in the first half of the year, new building turnover increased 34% year over year to a 22-year high, and developers' sales increased 95%. With sellable units at a four-year low, the bank raised its forecast for a real estate price increase in 2026 from an 8% increase to a 12% increase.

With the retail outlook better than expected, the strength of residential and central office buildings is in line with market expectations. The bank's preference order for the second half of 2026 is retail priority, followed by central office buildings, residential buildings, and then other office buildings. The preferred shares are Swire Properties (01972), Lingzhan (00823), and Sun Hung Kai Properties (00016).

The bank estimates that retail sales in Hong Kong will exceed HK$400 billion in 2026, benefiting from tourist arrivals, stable non-optional spending, strong demand for luxury goods, the expansion of the local economy and the strengthening of RMB/HKD. As retail sales led spot rents for about 8 months and further led rent adjustments by 12 to 18 months, the bank expects retail spot rents in shopping malls to recover in the second half of 2026, following 13 months of continuous growth in retail sales.

At the same time, considering that the high rent renewal cycle ends in 2026, the bank expects retail rent adjustments in shopping malls to bottom out in 2027. Major owners' shopping malls operate at an occupancy rate of over 97%, and Swire Properties, Hong Kong Land, and Xishen (00014) have seen positive rent adjustments. To seize the retail recovery, the bank favors Swire Properties, Lingzhan, and an opportunistic strategy for Jiulong Cang Real Estate (01997).

According to the report, in the first half of 2026, new building sales volume hit a 22-year high, and second-hand sales hit a 5-year high. First-hand unit transactions fell 60% month-on-month in the first half of July, and second-hand registrations fell 33% month-on-month. The bank believes this is due to cyclical factors: (1) a slowdown in the introduction of new listings; (2) stock market adjustments; (3) buyers wait and see the clarity of implementation of China's overseas investment regulations, which may take 1 fall and 2 months to stabilize; (4) narrowing bargaining space; and (5) seasonality.

As far as property prices are concerned, despite recent market adjustments, the bank believes they are structurally supported by limited supply. Completion volume in 2026/27:1.5 thousand units per year, the average annual land supply for FY26 in 2022 fell by 154,000 units, a four-year low level of sellable units, a two-year low total stock, and complete demand. Among residential-focused stocks, the bank favors Sun Hung Kai Properties due to its sufficient sales channels and the prospect of dividends per share growing as profits expand.