UBS Equities-Hong Kong Property __Property Purchase Capital Connect_ too...-116911966

ab31 July 2025Global ResearchPowered byUBS Evidence LabYESHong Kong Property"Property Purchase Capital Connect": too good to be true?Quantifying the impact of "Property Purchase Capital Connect"Financial Secretary Paul Chan yesterday announced that the government is working with mainland authorities to explore easing cross-border fund transfer restrictions. The initiative aims to facilitate property purchases by incoming mainland talent. In parallel, Hong Kong’s largest political party, DAB, proposed launching a “Property Purchase Capital Connect” scheme. The scheme would be closed-loop, mirroring the structure of the current Stock Connect; proceeds from property sales would be remitted back to mainland accounts via the scheme. DAB suggests a fund pool cap of Rmb100bn. If implemented, the scheme could be a positive for Hong Kong’s property sector. Onshore capital controls have long been a barrier for mainland buyers and increased demand from mainland purchasers could help ease pricing and inventory pressures. If we assume a 70% LTV ratio, the scheme may support up to HK$363bn in residential transactions in our upside scenario, equivalent to 81% of the city’s total residential transaction value in 2024 (HK$451bn split between HK$208bn primary and HK$242bn secondary). Potential 10% boost to 2024 residential transactions If we assume an average unit price of HK$8m, this implies demand for around 45,000 units—equivalent to 88% of the 2024 private transaction volume of 51,000 units, assuming full utilisation of the equity pool in our upside scenario. A more conservative way to assess the scheme’s impact is to consider deferred mainland demand due to capital controls, which a UBS Evidence Lab survey estimates at roughly 40% as of April 2025. According to Centaline, mainland buyers accounted for 25% of total residential transactions in 2024, or approximately 12,710 units in both primary and secondary markets. If the new connect scheme successfully drives a 40% increase in mainland buyer demand, it could increase residential demand by 5,100 units, which is equivalent to 10% of total private residential transactions in 2024.UBS Evidence Lab survey: home purchase and migrant intentions remain highUBS Evidence Lab’s 20th China Housing Survey (>Access Dataset), conducted between 23 March and 21 April 2025, polled 2,500 mainland consumers. The findings show that overall purchase intention for Hong Kong property over the next two years declined slightly to 16% from 18% in September 2024. However, current purchase intention remains above 2021 levels across all city tiers. The top motivations for buying property in Hong Kong are consistent: children’s education; investment returns; and lifestyle changes. Notably, migration interest rose among respondents in Tier-1 and Tier-2 cities, up from 8-12% to 10-16%. And 60% of respondents said tighter capital controls did not affect their overseas property purchase decisions, while 40% reported having cancelled, del