A wave of bullishness is sweeping through Hong Kong’s real estate market. A report by S&P Global Ratings on May 5 said an “upside surprise” could materialise. One of the catalysts for a stronger-than-expected recovery was evidence of more competitive bids at residential land auctions in recent months.

S&P said, “Hong Kong has become the first major city in China whose property market has bottomed. That could attract developers from mainland China looking to secure new projects”. More aggressive bidding could test the financial discipline of developers as “replenishing land will be crucial for developers to fortify their market position and support long-term growth after a period of muted acquisitions”.

In addition, S&P pointed to the strong role of investors at recent project launches. The removal of property cooling measures and higher rental yields than in China’s first-tier cities have made Hong Kong property attractive to mainland buyers.

Morgan Stanley also believes the strength of the recovery in the housing market is being underestimated. In a report on May 3, it revised its forecast for growth in secondary home prices this year from 10 to 12 per cent. It said Hong Kong would benefit from “tailwinds from capital and talent coming from the Middle East and the mainland”.

In a sign of just how bullish Morgan Stanley is, one of the risks it identified was the reintroduction of cooling measures. This is unlikely to happen given that prices are recovering from three straight years of decline and inventory levels are still relatively high. Even so, the recovery has gained sufficient traction to move the needle and become a key growth driver for the broader economy, an unthinkable prospect a year ago.

On May 6, Moody’s Ratings said, “a continued recovery in the property market supported improving consumer confidence as reflected in a sharp pickup in retail sales”. Hong Kong’s economy expanded by a much stronger-than-anticipated 5.9 per cent in annualised terms last quarter, with the “wealth effect” stemming from the dramatic revival of the city’s capital markets amplifying the improvement in domestic demand.