Hong Kong's home prices recorded their first annual increase in four years, with the official price index climbing 3.25 percent in 2025.

Analysts believe the special administrative region's residential property market has bottomed out, and that prices are poised to continue rising this year.

Buoyed by a robust equity market, a series of interest-rate cuts, as well as policy incentives from the SAR government, the housing market has finally emerged from a prolonged slump since 2021.

According to the latest data from the Rating and Valuation Department, the city's overall private home price index rose for a seventh straight month in December to 298.6, up 0.23 percent from November. That also represented a 3.25 percent increase compared with December 2024, when the gauge stood at 289.2.

The price index for smaller and medium-sized units — those under 100 square meters — also posted a year-on-year increase of 3.4 percent in December, the figure showed.

"The stabilization of home prices stems mainly from brisk transactions and a softer interest-rate environment," said Rosanna Tang, executive director and head of research at Cushman & Wakefield in Hong Kong.

Tang noted that market sentiment has significantly brightened, as banks in Hong Kong had dropped mortgage rates in response to several rounds of the US Federal Reserve's rate cuts last year, further lowering the cost of purchasing a property.

"We believe the residential market has bottomed out after an adjustment phase, with prices set to grow by around 5 percent in 2026," she added.

Benny Sham, an analyst at Midland Realty's research center, attributed the upturn to factors including economic growth, rising rents, and a decreasing inventory.

He expects the sector to stay buoyant, adding that home prices are likely to rebound by about 10 to 15 percent this year.

Norry Lee, JLL's senior director of project strategy and consultancy, said the equity market's strong run will give the residential market a further lift in the near term.

Hong Kong's benchmark Hang Seng Index concluded 2025 with a nearly 28 percent rally, posting its best performance since 2017, according to Hang Seng Indexes Co Ltd. Total market capitalization amounted to HK$47.4 trillion ($6.07 billion) at the end of December, up 34 percent from HK$35.3 trillion in the same period of 2024.

"Anticipated interest rate cuts in 2026 could further strengthen investor sentiment," Lee added. However, the analyst remains cautious, citing the high level of unsold inventories and ongoing macroeconomic uncertainties that might continue to weigh on the pace of market recovery.

More than 62,800 agreements for the sale and purchase of residential units were recorded with the SAR's Land Registry last year, including 20,540 primary market sales, an increase of 18.32 percent from 2024.