Business Insights | Residential Market: Lower Mortgage Costs, Higher Rental Yields

In the second half of 2025, as the U.S. begins a rate-cutting cycle, Hong Kong’s prime rate is expected to decline gradually, leading to lower mortgage costs. This low-interest environment, coupled with the growing trend of property purchases being more cost-effective than renting, is creating favourable conditions for investment, particularly in the rental property market.

Low Interest Rates and Policy Support Drive Market Recovery

In the current market environment, transaction volumes have risen across several traditional housing estates, including Kingswood Villas, Mei Foo Sun Chuen, Taikoo Shing, and Whampoa Garden. The widening gap between mortgage payments and rental costs, where buying has become more affordable than renting, alongside more attractive property prices, is encouraging a shift toward homeownership. As interest rates continue to fall, homeowners will benefit from reduced mortgage expenses, further reinforcing the “cheaper to buy than rent” trend. This may prompt potential buyers to act swiftly, with transaction volumes expected to increase quarter-on-quarter in Q4.

Additionally, as fixed deposit rates lose their appeal, more capital is likely to flow into the residential market, boosting investment in rental properties. The Hong Kong property market is now poised for a meaningful recovery. Lower mortgage costs, driven by declining interest rates, and the compelling economics of ownership versus renting are attracting investors seeking higher rental yields. With transaction volumes projected to surge in the coming months, more buy-to-let purchases are anticipated, offering a promising outlook for both homebuyers and investors.

The government’s latest Policy Address has also introduced property-friendly measures, including the relaxation of the Capital Investment Entrant Scheme, an increase in the quota for non-local students, and the acceleration of land supply. These initiatives are expected to support the long-term, healthy development of Hong Kong’s property market.

Kai Tak: Small-and-medium Sized Flats Sought After Under the Influx of Talent

The government has made concerted efforts in recent years to attract overseas talent, resulting in an influx of new residents that has particularly benefited well-positioned areas like Kai Tak, a large-scale, newly developed district. Over the past decade, residential developments in Kai Tak have matured, offering modern amenities and convenient access to shopping malls and lifestyle facilities, making it an attractive location for professionals. As a result, the area has experienced notable appreciation in rental prices.

A snapshot of the Kai Tak rental market in September of this year, based on local agency data, reveals a robust pricing structure. The largest segment of private residential rentals, approximately 36%, fell within the HK$ 20,000 to 30,000 per month range. Another significant portion, around 33%, commanded rentals between HK$ 15,000 and 20,000 per month. These two types become the majority of leasing deals in Kai Tak, reflecting the dominant position and popularity of one-bedroom and two-bedroom flats in Kai Tak. 

To comprehensively assess the evolving rental performance and yield dynamics within Kai Tak over the past two years (2023-2025), this analysis focuses on rental transactions of one- and two-bedroom units. The average rental rate for one-bedroom units in September reached approximately HK$53 per square foot, reflecting an 11.9% increase compared to September 2023. In contrast, the average rental rate for two-bedroom units was approximately HK$51 per square foot, representing a more significant 16.4% increase compared to two years prior. This stronger growth in two-bedroom unit rentals likely stems from increased demand from both top-tier talent and local tenants who often prefer larger living spaces.

This trend aligns with the broader market dynamics, as evidenced by the comparison of the latest Rating and Valuation Department (RVD) rental indices with those from 2023. Class B units (431 sq. ft. to 752 sq. ft.) experienced a robust 8.62% growth, surpassing the 5.35% growth observed in Class A units (under 431 sq. ft.). 

Kai Tak’s residential leasing market has shown strong performance in recent years, supported by the government’s talent attraction initiatives and the area’s appealing amenities. Rental data from 2023 to 2025 reveals notable increases in rents for both one- and two-bedroom units, reflecting sustained demand.

In terms of rental yield, rising rents coupled with property price adjustments over the past two years have resulted in attractive returns for buy-to-let investors. This trend highlights Kai Tak’s growing appeal as a residential investment destination, offering competitive returns and long-term potential.