Morgan Stanley expects HK's price/rental to grow by +5%, +5%, -5% for residential, office and retail in 2017, which is similar to 2016. The research house retained its "attractive" industry view.
Morgan said In the first eight months of the year, residential prices rose 1% despite weak 1Q. Improved volume and prices were driven by better affordability as prices declined 15% from September 2015 to March 2016 and mortgage rates declined 20bp.
Office rentals so far this year are up 3% YTD and on track to meet Morgan's estimate of 5% growth; similarly, mall rentals are down 1%.
Morgan believes residential prices will continue to go up in 2017, due to the low mortgage rate (owing to the low US Fed rate), and favorable demand/supply. The increase in office rentals is due mainly to limited supply (except in Kowloon East), while retail rentals should lag the retail sales decline (especially luxury) over the last 18 months.
The research house revised its target discount to NAV by roughly 5%, as it believes the real estate industry is more likely in a mid-cycle rather than in a downcycle. The revised target prices and rating are as follows:
Name Rating Target Price (Change)
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SHK PPT (00016) Overweight HK$150 13%
Link REIT (00823) Overweight HK$60 0%
Kerry Properties (00683) Overweight HK$31 11%
CK Property (01113) Overweight HK$65 7%
Sino Land (0083) Overweight HK$15.5 11%
Wharf Holdings (00004) Overweight HK$63 9%
Champion REIT (02778) Overweight HK$4.7 0%
Fortune REIT (00778) Equal-weight HK$9.8 0%
Swire Properties (01972) Equal-weight HK$23. 0%
New World Dev (00017) Equal-weight HK$10 18%
Henderson Land (00012) Underweight to Equal-weight HK$44 13%
Hang Lung PPT (00101) Equal-weight to Underweight HK$17 0%
Hysan Development (00014) Underweight HK$34 13%
Hopewell Holdings (00054) Underweight HK$25 0%