Hong Kong home prices have risen to the highest level in 14 months in September as stamp duty reductions on smaller units boosted transactions and expectations of potential interest rate cuts lifted market sentiment.

Official figures released by the Rating and Valuation Department on Tuesday showed that the city's official home price index, a gauge that tracks the prices of homes in the city, rose for the fourth consecutive month and stood at 295.2.

That was up 1.3 percent compared to the 288.7 in August and the highest since July last year.

On a yearly basis, it was up 1.6 percent, marking the first time that the gauge has recorded a growth in almost four years – since the start of 2022.

Commenting on the data, Eddie Kwok, executive director of valuation and advisory services at CBRE Hong Kong, noted that smaller-sized units have "benefited" the most from this round of price recovery, as those valued at between HK$3 million and HK$4 million saw transaction volumes rise more than 52 percent year on year between March and September to 2,385 units.

That was after the government lowered its levy for low-end home transactions in late February, when the maximum value of properties eligible for a flat HK$100 stamp duty was raised to HK$4 million from HK$3 million, helping buyers save up to HK$59,000.

Units that are valued between HK$4 million and HK$5 million saw transaction volumes increase by 34.2 percent year on year to 1,657 units.

However, larger units, especially those priced at between HK$15 million and HK$20 million, saw declines in transaction numbers, down by almost 30 percent, despite capital flowing into the luxury residential market.

Kwok also noted that developers who had previously been slashing prices and offering rebates to reduce inventories might slow down on such strategies as they were able to sell more than 1,600 primary units each month over the past seven months.

"Also, with the market anticipating another interest rate cut in the rest of 2025, coupled with a potential easing of US-China trade tensions, we foresee more end users as well as buy-to-lease investors grabbing the opportunity to enter the market actively," he said.

"These factors support the bottoming-out of Hong Kong residential prices, with a more obvious growth in 2026," he added.

Taking the first nine months in total, home prices grew by 1.1 percent.

The city's rental market continued to be strong, with the official key rental index rising for the 10th consecutive month to stand at 200 in September, the highest level in more than six years.

That was 0.2 percent higher when compared to the figure in August and about 2.4 percent higher year on year, though the pace of the growth has been slowing.