UBS: Hong Kong government is expected to completely withdraw cooling measures, but property prices in Hong Kong are expected to decline by 5%-10% this year.

UBS's latest research report predicts that the Hong Kong government will announce a new budget this Wednesday, which will completely abolish all residential-related stamp duties and introduce more measures to attract mainland Chinese tourists to Hong Kong. The removal of stamp duties will provide a one-time stimulus to property developers' stock prices and the real estate market, but UBS believes that the positive market sentiment may not be sustainable. Even with the complete removal of stamp duties, Hong Kong property prices are expected to decline by 5% to 10% this year. UBS points out that the supply of residential properties in Hong Kong remains sufficient, with an estimated 51,000 new units available for sale this year, indicating that it will take over 3 years to clear the existing inventory. With tightening credit conditions, highly leveraged property developers may lower prices to speed up cash inflow. Additionally, the continued gap between rental yields and mortgage costs has been dampening investment demand. UBS expects the Hong Kong property market to face challenges in the first half of this year, but market sentiment may improve in the second half if residential rents recover further and mortgage rates decline. Moreover, UBS estimates that the new budget will not include any more consumer vouchers, which could signal a negative impact on local consumption. It is expected that the Hong Kong government will introduce measures to attract mainland Chinese tourists, such as expanding individual travel schemes and possibly restoring the "multiple-entry permit" for Shenzhen residents, or even extending the program to other 8 cities in the Greater Bay Area. However, the statutory duty-free limit for mainland Chinese tourists in Hong Kong may not necessarily increase in the short term.