Developers demand land premium cuts
Developers are taking advantage of depressed market sentiment to bargain for lower land premiums for property redevelopment projects.
Analysts said developers facing weak sentiment when selling their properties were grasping the opportunity to argue with the Government for discounts in land values for their sites.
The Lands Department is expected to be inundated with applications by developers appealing for reductions in land premiums.
One of the latest appeals lodged involves the Mass Transit Railway Corp (MTRC), together with a consortium led by Wharf (Holdings) and Wheelock and Co.
They want a reduced land value payable for the commercial-residential development by Wharf and Wheelock above the MTRC's second-phase development of Kowloon Station.
The Government asked for a land premium of $10.6 billion when the MTRC awarded the project to the Wharf-Wheelock consortium at the end of October.
In response to the sharp property correction since then, developers want the premium reduced.
A government official said more appeals on land premium were expected from developers considering property prices had corrected so dramatically.
'The Government will have to go along with the market situation to adjust the land premium amounts,' he said.
Estate agents say residential prices have fallen about 20 per cent since the financial turmoil in October.
A senior executive of a developer yet to have discussions with the Government on the land premium amount for a redevelopment project said: 'We also hope to capitalise on the current market to negotiate for a lower price.' Land premium usually is payable for rezoning or modification of sites for higher commercial-value uses such as converting industrial lots or agriculture land for residential or commercial developments.
Developers also are required to pay additional premiums if they apply to raise the plot ratios or the gross floor area that can be built on their sites. The amount of the increase is agreed with the Government.
Pang Shiu-kee, managing director of S K Pang Surveyors & Co, said negotiations between developers and the Government on land premium were ongoing.
The present market provided a favourable opportunity for developers to argue or renegotiate for lower land prices, he said.
Most big developers were engaged in some sort of redevelopment project and premium negotiations with the Government had become part of their routine activities.
Projects for which premiums are under negotiation or being reviewed include HKR International's Discovery Bay extension on Lantau Island and Swire Properties' redevelopment project in Taikoo.
The land value for a hotel redevelopment in North Point jointly owned by Fook Lee Group and Cheung Kong (Holdings) has yet to be agreed.
Hong Kong Ferry (Holdings), controlled by Henderson Land Development, had appealed for a reduction in premium for its Central ferry pier's office redevelopment before the October crisis.
Sun Hung Kai Properties is having discussions with the Government on applications to increase the floor areas of between 20 and 30 projects, including that at Ma Wan.
When such applications are granted, reassessment of land values for the properties normally is involved.
Analysts said developers would benefit from the cyclical downturn in the property market by securing lower land values.