Hong Kong’s residential property market is poised for a recovery after enduring a seven-year downturn, according to Morgan Stanley.

Home prices in the city are set to bottom out, driven by an influx of Chinese mainland buyers, improved capital markets and a recent plunge in interest rates, analysts led by Praveen Choudhary said in a report dated June 19.  

“While we may be early, we see several reasons to be optimistic that we could be at the onset of an up cycle, which could last four to five years,” the analysts said.

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A recovering capital market is generating a wealth effect that further supports housing demand, they added.

The lower interest rates will also support the market. The one-month Hong Kong Interbank Offered Rate is hovering at the lowest level in three years after plunging last month.

Morgan Stanley expects home prices to stop their decline and grow 2 percent in the second half of the year.