Highlights

• Prices rose 7.4% YTD in 5M26, but June primary sales fell 60% mom and the first week of July saw the largest weekly CCL Index drop of 2026. We expect price growth to slow in 2H26.
   
• Retail sales are recovering (+10.6% yoy in 5M26) though spot rents still lag; in offices, Central and TST are recovering while Kowloon East stays weak.
   
• Maintain MARKET WEIGHT. Strong contracted sales, deleveraging and falling HIBOR should improve sector dividend sustainability. Top picks: SHKP and Link REIT.

Analysis

Update on Hong Kong property market: 

• Price momentum held up in June, but signs of market slowdown have emerged.  The Centaline City Leading Index (CCL) reached 159.54 points as of 5 Jul 26, representing a YTD gain of 10.7%. In June, the CCL Index rose 1.79% mom in Jun 26, similar to the mom growth pace of 1.64% /2.01%/1.85%/1.99%/1.77% in Jan/Feb/Mar/Apr/May 26, respectively. However, according to an update on 10 July, the CCL fell 0.77% wow, its largest weekly decline of 2026. The Centaline Valuation Index (CVI), which tracks large banks' property price expectations, has held steady at above 80 since Feb 26. Another clear sign of market slowdown is in the primary market: According to Midland Realty and Sales of First-hand Residential Properties Authority, Hong Kong recorded only about 850 new-home sales in Jun 26, down 59.6% mom and the first month below 1,000 units in 16 months. We expect growth in residential property prices to slow down notably in 2H26. 
   
• Smaller units continued to lead the price gain of residential properties... According to the Rating and Valuation Department (RVD), the overall private domestic price index reached 321.9 in May 26, up 1.42% mom and up 7.44% YTD. By class, Class A/B/C/D/E price indices recorded 5M26 changes of 7.20%/7.88%/6.78%/5.57%/4.12% respectively, with the smaller mass-market units still outpacing the larger units. 
   
• …but with compression of rental yield. The overall rental index went up 1.80% in 5M26 and up 5.10% yoy. By class, 5M26 YTD rental growth registered 0.36%/2.26%/4.34%/5.16%/3.46% for Class A/B/C/D/E units, respectively, with larger units (Class D-E, +4.54%) leading and the smallest Class A units flat (+0.36%). With prices running hardest at the small end and rents at the large end, we expect yields to compress fastest on smaller units: The Class A gross yield is 3.4%, down from 3.6% at end-25. It still clears the 3.25% mortgage rate. That positive spread remains a key structural support for housing demand.