A market report by Morgan Stanley, published on June 20, points to several factors that indicate a bottoming in Hong Kong’s residential property market, buoyed by the removal of stamp duties and marked up by limited supply, cheap valuations, and low gearing.
As a result, regional investors will likely turn to opportunities in the Hong Kong property market over real estate in Singapore, according to the market analysis by Morgan Stanley.
Hong Kong property prices have slipped 30% from their all-time peak in August 2021. Residential prices in the city-state have fallen 2% over the first five months of this year and price trends have been flat for the last three months. Morgan Stanley expects property prices in Hong Kong to increase 2% in 2H2025.
Praveen Choudhary, head of Hong Kong real estate research at Morgan Stanley, says that the bottoming of the Hong Kong residential market is likely to persist given pipeline limited supply, the removal of stamp duties, relatively cheaper valuations and a low gearing environment.
Meanwhile, the recent dip in the Hong Kong inter-bank offered rate (Hibor) has resulted in lower effective mortgage rates, helping pent-up homebuyer demand and investment demand. Likewise, a stronger performing stock market has also lifted overall sentiment in the real estate market.
The one-month Hibor is the benchmark rate used by major banks for the pricing of residential mortgage loans. With the Hibor retreating, the latest effective mortgage rate fell steeply to about 2%, benefiting buyers with a lower effective mortgage rate and easing financial pressure on developers, according to Morgan Stanley.
Strong and sustained mainland demand
“Higher contributions from mainland (China) buyers and the full removal of additional stamp duties in February 2024 have helped to stabilise home prices in Hong Kong,” says Choudhary, adding that migrant inflow from the mainland is also expected to boost overall demand levels in the coming months.
Buyers from mainland China purchased about 1,200 residential units in April this year, higher than the monthly average of approximately 800 units in 1Q2025. Over the first four months of this year, mainland buyers bought 3,782 units, a 7.6% y-o-y decrease, and purchases from this group accounted for 21% of the total sales volume in 4M2025.
“We believe mainland buying power is supporting the residential market with certain investment demand arising due to relatively higher rental yields at 3.5%–4%, compared with 1%–2% in Tier-1 cities in China,” says Choudhary. He adds that the complete removal of additional stamp duties in February 2024 also helped to boost the rising demand from non-locals.
The Hong Kong government’s continuous effort on talent attraction is expected to support the city’s housing market. Close to 27,000 various visa applications were approved in 1Q2025, an increase of 20% over the rate in 2024.
Continuing population inflow should induce housing demand through property purchases or renting, and could translate into demand for at least 2,700 units, roughly 16% of full-year primary volume in 2024, says Choudhary.
Residential market bottoms out
Morgan Stanley expects the latest performance of the Hong Kong residential market will be the start of a long cycle in Hong Kong’s residential market, as the city-state is structurally an undersupplied property market, and overall housing affordability has gone back to levels last seen in 2011.
“While we may be early, we see several reasons to be optimistic that we could be at the onset of an upcycle which could last four to five years,” says Choudhary.
However, persistent headwinds may dampen the overall performance of the residential market. This includes the high unsold inventory, which recorded about 22,654 unsold units as of end-1Q2025, and rising unemployment levels, which stood at 3.5% last month.
In terms of unsold units, this is the seventh consecutive quarter that the residential market has recorded more than 20,000 unsold units. Hong Kong property agency Centaline expects unsold inventory to surpass 23,000 units by the end of 2Q2025 due to declining sales and a slower pace of project launches by developers.
The Wong Tai Sin district (including Kai Tak area) has the highest number of unsold inventories at about 5,200 units, followed by Tseung Kwan O with 2,200 units, and Tuen Mun district with 1,900 units.
At the same time, unemployment crept up to 3.4% in May, an increase of 0.1% m-o-m and the second consecutive month the unemployment figure has increased. “We see downside risk to home prices if the unemployment rate rises further on a weakening macroeconomic environment,” says Choudhary.
Hong Kong appeal trumps Singapore
Looking ahead, while home prices in Hong Kong have slipped 1.5% year-to-date, prices have held up better than expected given prevailing market conditions, according to the investment bank. The firm expects home prices to fall 2% in 1H2025 but increase 2% in 2H2025 and keeps its overall FY2025 price forecast of flat y-o-y unchanged.
The growth in Hong Kong’s home prices outpaced Singapore’s from 2012 to 2018. But while private residential prices in Singapore have continued to climb by 50% over the past six years, home prices in Hong Kong have declined by 30% over the corresponding period.
“We find Hong Kong property prices relatively more attractive compared to Singapore given the prevailing price gap, coupled with the removal of all additional stamp duty on purchases,” says Choudhary. In Singapore, foreign buyers face a 64% additional stamp duty which has successfully reduced the overall investment demand from foreigners.
In addition, Hong Kong is expected to benefit from an “unprecedented” low Hibor rate environment that is expected to take the effective mortgage rate to below 2%, while Singapore’s mortgage rates are between 2%–2.3%.
