Goldman Sachs Raises Hong Kong Property Price and Core CBD Rent Forecasts, Prefers Developer Stocks

Overview

Goldman Sachs released an update on the Hong Kong real estate sector, raising its forecasts for Hong Kong property prices and core CBD office rents again based on stronger-than-expected price and rent trends. The report argues that the residential market recovery will be more sustainable, benefiting from supply-demand imbalances and government policies to attract talent; on the office side, the recovery in the core Central area is concentrated in the financial and asset management industries. The report also addresses three key market debates: whether Hong Kong property prices will converge with Shenzhen, the impact of Northern Metropolis development on developers, and whether C-REIT regulatory developments will aid capital recycling.

Core views

Comprehensive upward revision of property price and rent forecasts. Considering stronger-than-expected price and rent trends year-to-date, Goldman Sachs has raised its 2026 property price growth forecast from +12% to +15%, while maintaining the subsequent FY2027/FY2028 forecasts at +7%/+4% unchanged. Only about four months into the year, Hong Kong residential prices (per the Centa-City Leading Index) have already risen +8%, and primary sales transaction volume has increased by 48%. Regarding offices, the FY2026 rent growth forecast has been raised from flat to +3%, with core Central rents significantly upgraded from +3% to +10% (up +5% year-to-date), while non-core areas remain flat YoY due to high vacancy rates (10%+). Retail rent forecasts were slightly raised, with the high-end category moving from +4% to +5%, while the low-end remains at -2%. Residential market recovery is more sustainable. The report believes that supported by more aggressive government talent attraction policies, the residential market recovery will be more sustainable, with supply-demand imbalance being the core support. Visa application approvals in FY2024/25 reached 139k/124k, far exceeding the pre-pandemic annual level of 70-80k. Land sales, as a proxy for future housing supply, have lagged for years; MTRC plot tenders saw absentees, and developer participation decreased due to rising interest rates and tight balance sheets. Broadly, Hong Kong land costs are expected to remain persistently lower than in previous cycles, benefiting profitability and margin recovery for residential projects. Stock recommendations still favor developers. Goldman Sachs continues to prefer developer stocks, especially those with more salable resources to monetize in this upcycle (Buy ratings: Henderson Land, Sun Hung Kai Properties), or those with strong balance sheets intending to replenish land reserves when land prices are low (Sino Land). It also recommends selective owners with greater exposure to two more favored sub-sectors, namely core Central offices or high-end retail (Hongkong Land, Swire Properties). It remains cautious on Link REIT (Neutral rating), expecting negative low-end retail rent trends to persist into next year. Reiterates Buy rating on Jardine Matheson (conviction list). Responses to three major market debates. Regarding whether Hong Kong property prices will fully converge with Shenzhen, the report argues they will not, as income gaps will persist, Hong Kong has freer liquidity and no capital controls, and visa/border policies remain obstacles. Regarding Northern Metropolis development, it may accelerate the monetization of land reserves in the NM area for companies with rich land banks (Henderson, New World, SHKP), but developers remain wary of long-term oversupply. Regarding C-REIT regulatory developments, these could provide a platform for Hong Kong developers to monetize mainland China commercial properties, but cross-border capital restrictions and withholding tax issues exist; companies such as Swire, SHKP, Hongkong Land, Hang Lung, and Kerry have significant exposure to mainland China commercial properties.

Analysis framework

Goldman Sachs' analytical framework follows a progressive logic from macro fundamentals to micro valuation. First, it starts with fundamental improvements, including accelerated population growth, active capital market/IPO activities attracting liquidity, and asset price recovery, supporting further upside for real estate/conglomerate stocks. Secondly, it analyzes the residential market through a supply-demand framework, identifying lagging land sales and reduced developer participation as supply-side constraints, and talent inflows as demand-side drivers, leading to a conclusion of supply-demand imbalance. Thirdly, through historical cycle comparisons, it points out that prices/rents typically rise more sharply in the first 1-2 years of an upcycle, reflecting pent-up and sentiment-driven demand. Finally, it employs a Net Asset Value (NAV) discount valuation method to set target prices for covered targets, keeping the target NAV discount unchanged while adjusting NAV and earnings estimates based on updated industry forecasts.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Supply-Demand Framework Analysis

  By analyzing the imbalance between the supply side (lagging land sales, reduced developer participation) and the demand side (talent inflows, increased visa approvals), the sustainability of the residential market recovery is assessed. This is a core analytical method in the real estate industry, where supply constraints often support prices and margins.

• Valuation MethodNAV Net Asset Value Method

  NAV Discount Valuation

  Real estate companies are valued using the Net Asset Value (NAV) method, with target NAV discounts set (ranging from -30% to -85%). The NAV method estimates the company's held property assets at market value minus liabilities; it is a common valuation method in the real estate industry, where the discount reflects market concerns about the company's asset monetization capability and management efficiency.

• Industry/Sector Analysis FrameworkIndustry Concentration Analysis

  Core vs. Non-Core Area Divergence

  When analyzing the office market, a distinction is made between core Central and non-core areas; rent recovery in core areas is stronger (+10% vs. flat) as the recovery is concentrated in the financial and asset management industries. This regional divergence analysis helps identify structural opportunities and avoids overlooking sub-segment trends masked by aggregate data.

• Cycle & Prosperity FrameworkProsperity Inflection Point Analysis

  Early Upcycle Characteristics

  The report notes that prices/rents typically rise more sharply in the first 1-2 years of an upcycle, reflecting pent-up and sentiment-driven demand. This is a common observation in cycle analysis, helping investors determine the current stage of the cycle to adjust expectations and positions accordingly.

• Company Fundamentals & Financial FrameworkFree cash flow analysis

  Relationship Between Land Costs and Margins

  The report expects Hong Kong land costs to remain persistently lower than in previous cycles, benefiting profitability and margin recovery for residential projects. Land cost is a key driver of developer margins; low-cost land reserves can provide greater profit space on the sales side.

• Industry/Sector Analysis FrameworkUpstream-Midstream-Downstream Transmission

  Wealth Effect Transmission to Consumption

  The report points out that the wealth effect from the housing market recovery should support local spending, which has been recovering since mid-last year (+4%/+6% YoY in 3Q/4Q25 respectively). This represents the transmission logic from real estate to consumption, helping to understand the scope of the real estate recovery's impact on the overall economy.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Henderson Land Development (0012.HK)

  Buy rating (conviction list); has more salable resources to monetize in this upcycle, rich agricultural land reserves in Northern Metropolis (40.5mn sq ft)

  Strengths

  Abundant salable resources, largest agricultural land reserves, poised to benefit from NM development

  Comparison

  Preferred developer alongside SHKP

  Risks

  Policy support falls short of expectations, Fed rate cuts fall short of expectations, agricultural land resumption slower than expected, Hong Kong investment property portfolio underperforms expectations

• Sun Hung Kai Properties (0016.HK)

  Buy rating; has more salable resources to monetize in this upcycle

  Strengths

  Abundant salable resources, strong balance sheet

  Comparison

  Preferred developer alongside Henderson Land

  Risks

  Dividend payout ratio lower than expected, high interest rates, sustained low confidence among HK/Mainland property buyers, tightening financing conditions

• Sino Land (0083.HK)

  Buy rating; strong balance sheet and intention to replenish land reserves when land prices are low

  Strengths

  Strong balance sheet, intention to replenish land reserves

  Comparison

  Preferred developer alongside Henderson Land and SHKP

  Risks

  More conservative government land sales policy, HK retail and office recovery underperforms expectations, residential demand lower than expected, stricter government property market control policies

• Hongkong Land (HKLD.SI)

  Buy rating; greater exposure to core Central office segment

  Strengths

  Large exposure to core Central offices, more open to C-REIT channels

  Comparison

  Preferred owner alongside Swire Properties

  Risks

  Macro slowdown affecting office demand, sudden government policy changes affecting Chinese enterprise office demand, intensified competition in non-CBD areas, asset valuation adjustments, exchange rate fluctuations, changes in government housing policies, destructive NAV acquisitions

• Swire Properties (1972.HK)

  Buy rating; greater exposure to core Central office or high-end retail segments

  Strengths

  Large exposure to core Central offices and high-end retail, ~25% exposure to mainland China retail

  Comparison

  Preferred owner alongside Hongkong Land

  Risks

  Potential threat from new developments in Island East, scalability of mainland China portfolio, risk of oversupply in mainland China office and hotel markets, uncertainty in HK and mainland China retail sales recovery

• Link REIT (0823.HK)

  Neutral rating; cautious on low-end retail rent trends

  Strengths

  Management more open to asset divestitures; if successful, could release capital for buybacks or dividends

  Weaknesses

  Negative reversal in low-end retail rents expected to persist into next year

  Comparison

  More cautious compared to other owners

Key data

• 2026 Property Price Forecast+15%Raised from previous +12%; up +8% year-to-date
• FY2027/FY2028 Property Price Forecast+7%/+4%Unchanged
• Core Central Office Rent Forecast+10%Significantly raised from +3%; up +5% year-to-date
• Overall Office Rent Forecast+3%Raised from flat; up +1.5% year-to-date
• High-End Retail Rent Forecast+5%Raised from +4%
• Low-End Retail Rent Forecast-2%Unchanged
• Primary Residential Sales Volume+48%Year-over-year increase
• Retail Sales+13%March YoY; Jan-Feb was +12%
• FY24/25 Visa Approvals139k/124kFar higher than pre-pandemic annual level of 70-80k
• Target Price Increase Magnitude0-8%Based on updated NAV forecasts; target NAV discount unchanged

Impact & implications

The impact on covered companies is mainly reflected in NAV and target price adjustments. Goldman Sachs has raised the 12-month NAV-based target prices for covered targets by 0-8%, while keeping the target NAV discount unchanged. The target price for New World Development was lowered by -12%, primarily due to updates on net debt and cash flow. Companies with exposure to the mainland China residential market (Kerry Properties 21%, New World 14%, CK Asset 10%, SHKP/Henderson 3%) may gain upside as the mainland China team raises Shenzhen and Shanghai property price forecasts to +15% (by end of FY2028). Companies with significant exposure to mainland China retail (Hang Lung ~40%, Swire ~25%) will benefit from improved consumer sentiment. The report estimates that mainland Chinese tourists currently contribute only about 20% of Hong Kong's retail sales, down from 30%+ pre-pandemic, thus having a limited pull on the overall retail recovery.

Risks

• Rise in US Treasury yields, recently driven by inflation concerns following oil price increases after the outbreak of Middle East conflicts
• Fed rate cuts falling short of expectations; maintaining a tighter monetary policy will directly affect buyer affordability
• Sustained low confidence among property buyers in Hong Kong and mainland China
• Tightening financing conditions in banking or bond markets
• Slower-than-expected recovery in mainland China retail consumption
• Insufficient policy support for the Northern Metropolis potentially affecting investment returns
• Cross-border capital restrictions and withholding tax requirements for C-REITs
• Sudden changes in government housing policies (e.g., stricter property market controls)

What to watch

• Fed interest rate path; expected to cut rates once in December 2026 and once in March 2027
• Legislative progress on the Northern Metropolis; target to complete legislation by end of this year
• C-REIT regulatory and market developments; which companies/assets might consider this channel
• Updates on capital allocation and investment strategy at Jardine Matheson's Investor Day on June 16
• Sustainability of population inflows into Hong Kong; number of visa approvals
• Sustainability of core Central office rent recovery
• Property price trends in Shenzhen and Shanghai, mainland China; provides upside for covered companies