Hong Kong Real Estate:Year of the ROOSTER,Shares largely range-bound,but segmental divergences can drive alpha

Flattish prices, flattish sector

But we find plenty of themes to drive alpha:

Rate hike to start filtering through thesystem, but mortgage rate hikes to remainsmall (banks team expects 25bps in 2017E),leading to our view of a gradual price decline;Opportunities for accretive investments arescarce & shareholders seek return of capital;Office market divergence between Centraland non-core districts to continue;Southbound flows a new driver for bothland and share prices; three most ownedstocks by Southbound (in terms of % ofshares) are Kerry Prop, NWD, and CKP.

Tax hurts volume more than pricing, whilepick-up in primary market activities couldprovide windows for launches;Election in March, with impact on direction ofproperty market/policies still uncertain;Retail to see recovery of tourist trades partlyoffset by slower domestic discretionary.