KGI Asia: If developers accelerate inventory reduction, Hong Kong property prices may recover to unit number growth as early as next year
The Chief Investment Officer of KGI Asia, Liang Qitang, stated that if Hong Kong developers accelerate inventory reduction, it is expected that Hong Kong property prices will recover to single-digit growth as early as next year. He anticipates that the Federal Reserve will cut interest rates 4 times this year, believing that rate cuts will help reduce funding costs and support the economy. Although transactions in the property market have rebounded, high inventory levels still put pressure on the secondary property market. In terms of office buildings, due to slow economic recovery and excessive new supply, rents are expected to drop another 10% next year. Liang Qitang suggested that investors focus on stocks in other industries rather than Hong Kong real estate stocks
According to the Zhitong Finance APP, the tariff policy adds more uncertainty to the U.S. monetary policy. Liang Qitang, Chief Investment Officer of KGI Asia, stated in an exclusive interview that he expects the Federal Reserve to cut interest rates four times this year, which theoretically supports Hong Kong property prices. If Hong Kong developers accelerate their inventory reduction, it is expected that Hong Kong property prices could return to single-digit growth as early as next year.
Liang Qitang believes that the U.S. tariff policy increases the decision-making difficulty for the Federal Reserve, which must balance between the labor market and inflation targets. However, if high inflation is caused by tariffs rather than increased demand, raising interest rates will not affect inflation. On the contrary, cutting interest rates can lower funding costs and support the economy. Therefore, he believes that rate cuts are the only way out under the circumstances, expecting the U.S. to cut rates four times this year.
He pointed out that the recent rebound in property market transactions is an indicator of improved confidence, but high developer inventory puts pressure on the secondary property market. As long as rents continue to rise, coupled with bank rate cuts, buying properties will return to positive returns, thereby driving investment demand.
This year, the property market mainly focuses on digesting the backlog of inventory. Therefore, if developers accelerate the pace of launching new projects, the speed of inventory digestion will also increase. Additionally, the wave of selling properties for immigration has passed, and the number of pre-sold properties will significantly decrease in the next three years. Property prices have also fallen by more than 20% from their peak, so he is optimistic that the property market can return to normalization as early as next year, with annual property price increases of about single digits.
Regarding office buildings, Liang Qitang believes that the Hong Kong economy is recovering slowly, with a high vacancy rate for office buildings, and excessive new supply puts pressure on office rents. He expects rents to fall another 10% next year, thus developers with a lot of commercial properties face greater pressure.
If the capitalization rate (cap rate) rises, asset values will be adjusted downwards, increasing risk. Even if debt does not increase, the debt ratio will also rise. Coupled with the currently high capital costs, everyone is hesitant to make transactions, causing the commercial property market to stagnate.
Liang Qitang emphasized that being optimistic about the property market does not mean being optimistic about Hong Kong real estate stocks. Currently, the asset return rate of Hong Kong real estate stocks is only about 4 to 5%. The profit margin for residential development is slightly higher, but most Hong Kong developers primarily focus on rental income. Therefore, he suggests buying stocks from other industries, which are more worthwhile than real estate stocks