Even Hong Kong property bears are bullish on real estate stocks

While home prices are poised to fall as much as 10% by the middle of 2016, Mr Kan reckons publicly-traded shares have baked that in and more.

The analyst at Daiwa Securities Group’s Hong Kong unit sees the stocks rallying at least 20% over the next year. With Sun Hung Kai Properties and its peers all trading at valuations below the global average, Mr Kan says as long as the property market cools rather than crashes, there’s plenty of room for stocks to rally.

"This kind of discount you can’t find anywhere in global property," said Mr Kan, whose calls over the past three months delivered almost twice the gains of the average strategist tracked by Bloomberg.

"In the past, when the actual decline in prices turned out not as large as the stock market has discounted, share prices usually do quite well after that."

He’s not the only analyst who’s bullish: price targets compiled by Bloomberg imply a 23% average rally for Hong Kong’s biggest developers and landlords in the next year. That’s with Bocom International Holdings, Barclays and CLSA all forecasting a slump in residential prices amid concern about higher mortgage rates, increasing supply and China’s economic slowdown.

The city’s nine biggest real estate shares slid an average 8.4% in 2015 through Wednesday, with Wharf Holdings leading declines. Cheung Kong Property Holdings, which spun off in June, is down 30% since then. A measure of property companies on the Hang Seng Index gained 1.4% at 9.53am in the city, with Sino Land and Cheung Kong Property leading the advance.

Investors have overreacted to fears of a plunge in home prices before, according to Mr Kan.

In 2013, the city’s property stocks tumbled amid government efforts to curb house-price growth and as global financial markets braced for a reduction in stimulus from the US Federal Reserve. The Hang Seng Properties Index climbed 7.2% the following year as home-price declines projected by a long list of brokerages never materialised.

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