A research report indicates that the Hong Kong property market's policy relaxations from 2022-2024 only generated temporary rebounds, with initial signs of bottoming out emerging in 2025. As of the end of August, the private residential price index declined merely 0.24% compared to the end of 2024. The key to this stabilization lies in Hong Kong's economic recovery in H1 2025 (primarily driven by the financial sector) and the interest rate decline window from May to July, creating an environment where residential rental yields exceeded mortgage rates. The outperformance of small to medium-sized, lower-priced units in Hong Kong's property market in 2025 confirms this trend. However, with overall inventory levels remaining elevated, property developers continue to focus on destocking in the short term, with property prices expected to maintain stability. Medium to long-term outlook depends on economic recovery pace and interest rate changes.
**H1 2025 Hong Kong Property Market Shows Initial Bottoming Out Signs, Policy Relaxation Not the Decisive Factor**
Despite more aggressive policy adjustments in 2023 and 2024, including comprehensive removal of property cooling measures that effectively supplemented mainland Chinese buyers (who accounted for 24% of new and second-hand property transactions in 2024), policy effects remained pulse-like recoveries. Hong Kong's residential price index declined 7.1% in 2024.
In early 2025, Hong Kong's property policy relaxation was moderate, raising the property value threshold for HK$100 stamp duty from HK$3 million to HK$4 million. However, the market showed initial signs of bottoming out, with new home and second-hand transactions reaching 13,000 and 27,000 units respectively in January-August 2025, representing year-over-year growth of 13.9% and 13.8%.
**Key Factors for Bottoming Out: Economic Recovery and Favorable Interest Rate Environment**
Hong Kong's financial sector recovery supported economic growth in 2025. Capital market financing was active in H1, with H-share IPO fundraising on the Main Board reaching HK$88.85 billion by the end of June, already exceeding the full-year 2024 level. First-quarter total new insurance premiums reached HK$93.4 billion, up 43% year-over-year. Hong Kong's Q2 GDP grew 3.1% year-over-year, with private consumption expenditure turning positive at 1.9% growth.
**High Residential Rental Yields Serve as Property Price Stabilization Catalyst in Low Interest Rate Environment**
The "Quality Migrant Admission Scheme" launched in late 2022 exceeded expectations, with approximately 350,000 talents and family members arriving in Hong Kong by the end of 2024, directly stimulating rental demand. Hong Kong residential rents bottomed out and rebounded in 2023, with private residential rental indices rising 6% and 3.5% in 2023 and 2024 respectively. Declining property prices and rising rents drove up residential rental yields.
Calculations suggest that as of July 2025, Hong Kong's actual residential rental yields may range from 1.8%-2.7%, with units under 100 square meters achieving actual rental yields of 2.2%-2.7%. Influenced by declining Hong Kong Interbank Offered Rate (HIBOR to around 0.6%), mortgage rates in Hong Kong fell to around 2% during May-July 2025, below the actual rental yields of small units, prompting residents to purchase properties from an asset allocation perspective.
**Transaction Structure Confirms Analysis: Small Units Outperform**
Transaction structures support this conclusion. In H1 2025, small-sized, low-priced units in Hong Kong showed significantly faster transaction volume growth than large units, with smaller price declines. By mid-July 2025, new home transactions exceeded 10,000 units, up 14.4% year-over-year. One-bedroom and two-bedroom unit transactions increased 17% and 45% respectively, while three-bedroom transactions declined 19%.
From total transaction value perspective, residential transactions under HK$5 million grew 35% year-over-year, while transactions above HK$5 million remained essentially flat. Price-wise, as of end-August 2025, Hong Kong Class A, B, C, D, and E residential price indices changed +0.9%, -0.9%, -1.2%, -1.6%, and -0.3% respectively compared to end-2024. Small units, with higher rental yields and smoother asset allocation logic, saw Class A units (<40 sqm) rise against the trend, while other categories showed smaller declines for smaller unit sizes.
**New Home Inventory Pressure Remains, Short-term Price-for-Volume Strategy Continues**
According to Hong Kong Housing Bureau data, potential first-hand residential supply over the next three to four years reaches 101,000 units, with approximately 27,000 completed but unsold "surplus stock." Current completed inventory clearance cycle is about 18 months, compared to under 10 months during 2010-2020.
Popular new developments in H1 2025 were mostly located in the New Territories, implementing price-for-volume strategies. The bestselling project SIERRASEA launched initial units below market expectations, priced lower than previous new launches in the area and surrounding second-hand properties.
**Investment Recommendations**
Consider SWIREPROPERTIES (01972), SHK PPT (00016), HENDERSON LAND (00012), and KERRY PPT (00683).
**Risk Factors**
Macroeconomic fluctuations affecting resident income expectations and property prices; developers accelerating supply pace leading to above-expected supply growth; potential errors in actual rental yield calculations.