According to a research report released by Fubon, sales data for residential buildings in Hong Kong show that the Hong Kong property market is recovering in the first half of this year, which is bullish for developers. Even if there are more price reductions for new properties in the third quarter, strong leasing activities will support asset yields and attract investment demand, indirectly helping with sales. Therefore, the bank still prefers developer stocks over house rental companies, with Sino Land (00083) and New World Development (00016) as top picks.
Furui expects that developers will continue to lower prices and promote sales in the third quarter, and some developers may postpone the launch of new projects to maintain the average profit margin. However, before the rate cut becomes more certain in the fourth quarter, the price promotion of new projects will inevitably affect the prices of second-hand properties. In terms of rent, rents continue to rise, with an average rental yield of about 3.4%. Rental activity is expected to remain strong in the third quarter, which may be conducive to the sales of new projects and overall buyer sentiment.
Furui stated that although there is uncertainty about the rate cut, the weakening of affordability should be cyclical, and the demand for the property market is still healthy, which will support future residential sales. The improvement of cash flow will bring surprises to developers. The bank expects that Sun Hung Kai Properties will increase its mid-term dividend, and its current valuation has largely reflected the pressure on profits. The bank is also bullish on the stable financial situation and dividend visibility of Sino Land, with a dividend yield of 7%.