CICC: Hong Kong property market is still in a destocking cycle in the new fiscal year. It is expected that Hong Kong's budgeted land revenue for the whole year will "exceed expectations".

CICC released a research report stating that the land premium income for the fiscal year 2026 is expected to increase slightly from the revised figure for fiscal year 2025 (HK$17.5 billion) to HK$18 billion; based on historical data and current asset price trends, CICC believes that the actual collection for the year may exceed this budget. The forecasted supply of residential land for the fiscal year 2026 is expected to increase to 22,600 units (compared to the actual supply of 13,500 units in fiscal year 2025), similar to the volume of first-hand residential transactions in the past 12 months. CICC believes that the planned increase in residential land supply will facilitate major property developers to replenish their inventory in a timely manner, while improving supply flexibility to prevent excessive rise in house prices in the medium to long term, thus promoting a healthier and more sustainable real estate cycle. Considering the historical completion rates of supply, CICC judges that the Hong Kong property market is still in a destocking phase in the new fiscal year. Key points from CICC are as follows: The budgeted land premium income is expected to see a slight increase compared to the previous year's revised figure, with a potential "overshoot" for the whole year. Land premium income is a core non-recurring item in the Hong Kong government's finances, which includes revenues from land sales, land exchanges, and contract revisions. Over the past decade, it has contributed over HK$1.5 trillion in revenue, accounting for approximately 15-30% of total revenues in prosperous years in the property market cycle; likewise, the recent decline in land premium income has put pressure on non-operating revenues in Hong Kong. The forecasted land premium income for the fiscal year 2026 is expected to increase slightly from the revised figure for fiscal year 2025 (HK$17.5 billion) to HK$18 billion; based on historical data and current asset price trends, CICC believes that the actual collection for the year may exceed this budget. In addition, to bolster the government's finances, the new fiscal year plans to increase the stamp duty rate for luxury residential transactions exceeding HK$100 million to 6.5% (from the previous 4.25%), affecting only 0.3% of housing transaction volume. The marginal increase in supply of residential land is expected to lead to a steady decline in inventory for the whole year. The fiscal year 2026 is expected to see an increase in the supply of residential land to 22,600 units (compared to the actual supply of 13,500 units in fiscal year 2025), similar to the volume of first-hand residential transactions in the past 12 months. CICC believes that the planned increase in residential land supply will facilitate major property developers to replenish their inventory in a timely manner, while improving supply flexibility to prevent excessive rise in house prices in the medium to long term, thus promoting a healthier and more sustainable real estate cycle. Considering the historical completion rates of supply, CICC judges that the Hong Kong property market is still in a destocking phase in the new fiscal year. In terms of structure, government-driven approaches such as land sales and railway development projects see significant increases in planned supply; in fiscal year 2026, there will be 9 plots (3 continuations + 6 new plots) of residential land, totaling approximately 6,650 units, with 7 plots located in the New Territories (including all 3 plots in the Hung Shui Kiu Development New Area), where the northern metropolitan area is expected to contribute around 50% of new residential land in the next five years. For the second consecutive year, there will be no sale of pure commercial land, and there may be three plots of student dormitory land entering the market. Considering the pressure on supply and demand in the office and retail property markets, as well as the relatively high vacancy rates, the Hong Kong government is not selling pure commercial land for the second consecutive year. In addition, the first batch of land under the "Schools in the City Scheme" initiated in July 2025 is expected to enter the market in fiscal year 2026, located in Kai Tak, Sha Tin Siu Lek Yuen, and Tung Chung East, providing a total of 5,000 dormitory places. In recent years, the Education Bureau has increased the quota for non-local undergraduate students, coupled with the steady expansion of postgraduate programs offered by the Eight Universities in Hong Kong, leading us to estimate that there may be an additional 35,000 non-local students in the off-campus housing market by the 2027-28 academic year, driving demand for surrounding private residential rental properties.