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Citi predicts Hong Kong development property margins will recover between 13 percent and 18 percent in the first half of 2026, forecasting a strong earnings rebound from recovering margins, high revenue recognition, and lower financing costs.
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The improvement is attributed to strong sales feeding into revenue recognition, with completed units typically accounting for 20 to 30 percent of the mix, alongside positive rental reversions across China's retail sector and reduced finance costs from lower debt levels. The development property margin recovery was between 3 percent and 8 percent in the first half of 2025.
Citi expects dividend growth to be a key theme, favoring companies with clear dividend policies linked to earnings growth. Swire Properties (1972) and Hongkong Land are projected to deliver committed mid-single-digit dividend growth, while Sun Hung Kai Properties (0016) and CK Asset (1113) are expected to raise dividends in line with earnings-per-share growth under pre-set payout ratios.
Earnings forecasts vary significantly across developers. Henderson Land Development (0012) is expected to lead with over 30 percent year on year earnings growth, driven by recognition of over 10 billion yuan (HK$11.54 billion) in development profits. Swire Properties is projected to see a 30 percent increase to around HK$4.5 billion, including approximately HK$1 billion in profit from the sale of Houses at 6 Deep Water Bay Road. Hongkong Land and Hang Lung Property (0101) are forecast to see moderate growth of 7 to 10 percent and 4 to 7 percent, respectively.
However, some names face headwinds. Kerry Properties (0683) is expected to see earnings decline as bookings and margin recovery skew to the second half of this year, while New World Development (0017) could report a loss due to impairments, margin pressure, and finance costs.
"As profit is backward-looking, investors are likely to focus more on forward indicators in the first half of the year results, such as sales targets, margin guidance, reversionary outlook, leasing of new assets, capital expenditure, and future cash flow position," Citi analysts noted. The brokerage has named Swire Properties, SHKP, CK Asset Holdings, and Link REIT (0823) as its top picks.
