Hong Kong Developers: Housing Market Continues to Face Near-Term Interest-Rate Headwinds

The lowering of the stamp duty in Hong Kong has had a limited impact in reviving the residential market as housing prices continue to decline in the face of high interest rates and a weak economic outlook. According to the Rating and Valuation Department, the private residential price index fell to a seven-year low in November 2023, and we expect price weakness to persist through the first half of 2024. While interest rates have likely peaked, we think that housing prices will only find support in the second half of 2024. Our U.S. economist said he expects the Federal Reserve to start cutting rates in March 2024. We cut our fair value estimates for Henderson Land and Sun Hung Kai Properties to HKD 34 and HKD 115 from HKD 36 and HKD 128, respectively, after lowering our near-term assumptions on their Hong Kong development margins and sales.