The competition could intensify at tenders for Hong Kong’s residential plots as developers replenish their land banks amid a recovering property market, with the tug of war testing their financial discipline as they bid for parcels at a “noticeable premium”, according to S&P Global Ratings, though some analysts believe that the return of confidence is warranted given robust demand for housing units.

The credit-rating agency also forecast a relatively modest residential market recovery, which could potentially limit the pricing strategies of developers as new projects are launched in future.

“Rated developers handled Hong Kong’s property downturn deftly by trimming investments and bolstering balance sheets,” S&P said in a report on Wednesday. “Now the question is whether they will throw caution to the wind as demand revives.”

The rating agency said that the coming land auctions could test market discipline as “we see a risk of intense bidding because Hong Kong’s property market is known for its pronounced upcycles”.

“Any purchases of land at inflated prices could be a long-term risk,” S&P said.

Winning bids for four recent land tenders came above the upper end of market estimates of between 7.1 and 37.9 per cent, S&P said.

Sino Land’s HK$1.09 billion (US$139 million) winning tender for a 47,000 sq ft site in Tuen Mun in August was 37.9 per cent higher than the upper end of estimates, according to the report. In November, Chinachem Group secured a 70,127 sq ft parcel in Tsuen Wan for more than HK$2.47 billion, 26.5 per cent more than the highest estimate.

The trend has continued this year, with Kerry Properties beating other developers with a HK$1.38 billion tender for a 14,523 sq ft lot in Shau Kei Wan – 16.8 per cent above the highest estimate.

Last month, a consortium led by Sino Land, alongside state-backed mainland developers China Overseas Land & Investment and China Merchants Land, won a tender for the Kam Sheung Road Station Phase Two development with a total investment of over HK$13 billion, signalling continued confidence in Hong Kong’s Northern Metropolis.

The confidence in land purchases is in contrast to the lukewarm bidding seen in the past few years.

The total land premium income generated from five of the eight residential land sales successfully tendered and awarded in the 2025-26 financial year amounted to about HK$8.36 billion, exceeding the HK$6.53 billion in 2024-25 and HK$7.27 billion in 2023-24, according to CBRE.

Analysts are also upbeat about the property market’s outlook.

“As the current home prices are still 20 per cent lower than the peak in September 2021 and the land prices are also lower from the peak by almost 30 to 50 per cent, I would not say that the developers are overly optimistic,” said Vincent Cheung, managing director at Vincorn Consulting and Appraisal.

Developers are only now “gaining confidence to return to the land sale market amid the improved sales of new homes”, he said.

Alex Leung, a senior director and chief surveyor at CHFT Advisory and Appraisal, said that recent winning bids showed major developers were more optimistic about the outlook for property prices and the broader market.

He said the current bids were not inflated. “If this were only happening with a single developer, then you might argue the pricing is overly aggressive,” he said.

However, he pointed out that multiple recent tenders had come in above market expectations, with sizeable investment commitments. “When several developers are bidding at similar levels, it reflects a broader market view rather than isolated overpricing.”

On Monday, Morgan Stanley upgraded its forecast for the city’s home prices to a 12 per cent increase this year from 10 per cent previously and anticipated another 5 per cent rise in 2027.

S&P, however, took a more conservative view on the outlook of the housing market. The recovery in home prices was likely to moderate for the rest of the year, with prices forecast to increase between 3 and 5 per cent, S&P said. Secondary home prices rose 4.4 per cent in the first quarter.

In 2027, the price growth could slow to between zero and 3 per cent, it added.

S&P forecast that primary home sales would increase 2.2 per cent to 21,000 units this year, before falling to 18,000 units in 2027, which would still be higher than in 2022 and 2023.

“We predict a phase of moderate recovery in Hong Kong’s housing market over the next two years,” said Edward Chan, credit analyst at S&P Global Ratings. “Hong Kong’s traditional supply-demand imbalances likely won’t be as pronounced as they have often been in the past. Supply of new private homes over the next three to four years remains adequate, and subsidised housing supply is also on the rise.”

Additional reporting by Peggy Ye