"Big Banks" UBS: Hong Kong property stocks are becoming expensive in valuation, with a preference for low debt, high dividend, and buyback themes in stock selection

UBS published a research report indicating that the Hong Kong real estate sector is off to a strong start in 2026, with several stocks approaching historical highs. As valuations appear increasingly expensive, even for some stocks based on price-to-book ratios, the bank is adopting a more selective approach. The bank particularly favors stocks with relatively low net debt-to-equity ratios, such as SINO LAND (00083.HK), CK ASSET (01113.HK), and KERRY PPT (00683.HK), believing that they carry lower risks related to equity-related issuances, given the slow progress of industry deleveraging and the ongoing need for funding to replenish land reserves. It also prefers stocks that offer sustainable high dividends, such as SWIREPROPERTIES (01972.HK), SINO LAND, and KERRY PPT. Additionally, stocks with low price-to-book ratios supported by capital recycling or share buyback plans, such as CK ASSET and LINK REIT (00823.HK), may have opportunities for valuation re-rating.

UBS believes that the market has largely reflected the positive factors of the residential recovery, including further interest rate cuts, an influx of talent and students from the mainland, and reduced supply. However, the market has not fully appreciated the potential benefits brought by returning immigrants, a factor that supports the bank's forecast of over 10% growth in property prices over the next two years. Between 2020 and 2025, approximately 321,000 Hong Kong residents applied for UK BNO visas, Taiwan residency, or Canadian Stream A student visas. With the UK tightening language and income requirements for permanent residency, UBS expects a wave of returnees this year. Assuming that 30% of the immigrant group returns in 2021, the estimated new demand for 2027 would be 13,900 units, equivalent to 90% of the primary supply and 26% of the total supply. The bank anticipates that the supply-demand situation will remain favorable until 2032, before the completion of projects in the Northern Metropolis area.

UBS stated that in 2026, it prefers SWIREPROPERTIES, SINO LAND, LINK REIT, CK ASSET, and KERRY PPT; it holds a cautious attitude towards HENDERSON LAND (00012.HK) (before earnings announcement), HYSAN DEV (00014.HK), and MTR Corporation (00066.HK). For rental stocks, the bank has raised the target prices for SINO LAND, CK ASSET, KERRY PPT, Sun Hung Kai Properties (00016.HK), SWIREPROPERTIES, and HYSAN DEV.

UBS's investment ratings and target prices for real estate stocks are listed as follows:

Stock | Investment Rating | Target Price (HKD)

SINO LAND (00083.HK) | Buy | 11.2 → 14.3

CK ASSET (01113.HK) | Buy | 42.9 → 54.9

KERRY PPT (00683.HK) | Buy | 24 → 29.3

Sun Hung Kai Properties (00016.HK) | Neutral | 96 → 136

SWIREPROPERTIES (01972.HK) | Buy | 26.1 → 29.6 HYSAN DEV (00014.HK) | Neutral | HKD 15.7 → HKD 22.4