Land of opportunity
The government's latest pledge to increase land supply did little to dampen the residential property market. Sellers are regaining confidence and raising asking prices again, while more buyers are returning to the market. Buying sentiment remains robust, especially in the luxury sector due to a scarcity of developments.
No drastic policy measures were introduced by Financial Secretary John Tsang Chun-wah in his annual budget speech, other than the promise to sell more residential land this year and beyond. This moderate approach has relieved some concerns about further government intervention in the short term to combat property prices, although some analysts say it is still premature to judge the real impact from a faster pace of land sales. Wong Leung-sing, associate research director at Centaline Property Agency, says the budget has announced nothing new except for the government's established policy of increasing land supply to help the market's stable development.
'It is great to see that the government has not brought in any heavy policy measures to interfere with the market's operation. This is good news for the market. The budget speech is going to have a positive effect on the property sector,' he says.
For the fiscal year starting April 1, 18 new residential sites located at Ho Man Tin, Tuen Mun, Tseung Kwan O, Ap Lei Chau, North Point and Sha Tin are being injected into this year's programme. In effect, together with 34 sites rolled over from last year's application list, there will be 52 plots of land for sale.
All these sites will provide about 16,000 flats, including about 3,000 small and medium-sized flats to be sold by tender, an increase of 70 per cent from the estimated 9,000 flats made available in the previous fiscal year. Together with projects above several MTR stations and some redevelopment sites, housing land will provide 30,000 to 40,000 private flats, far exceeding the annual average target of 20,000 flats, according to the government.
It is, however, uncertain how many of the sites will go on sale eventually. Under the application list system, sites are triggered for sale when a developer promises to pay a floor price considered 'fair and acceptable' by the government.
In a show of determination to put its words into action, the government will initiate auctions or tenders for four sites, rather than wait for a developer to trigger a sale. It will also put up for sale by tender five sites in addition to those on the list. As a kick-start, two Hung Hom sites - 5-23 Lee Kung Street and the site at the junction of Bulkeley Street and Gillies Avenue South - will be scheduled for tender in April, making them the first to be put into the market to provide small and medium-sized flats in urban Kowloon. The government also plans to auction another Hung Hom site, the ex-Customs and Excise Service married quarters at Ko Shan Road, in April.
Residential prices in Hong Kong have jumped by more than 50 per cent in the past two years as a result of extremely low interest rates, a strong economy and an influx of hot money. This has raised worries about a property bubble and prompted government measures to cool the market, including increasing land supply, removing property from the investment immigration scheme and introducing extra stamp duties to curb speculation.
There were signs of a pick-up in home sales, especially in the primary market, as developers released more new projects after the budget speech. Sellers have also become more aggressive in pricing their properties.
'Homebuyers are keener to snap up properties in anticipation of further price increases. This is particularly true in the luxury property sector, where prices are expected to rally further,' Wong says. 'There is strong demand from local buyers and end-users. The market is set to grow healthily and steadily.'
Buggle Lau Ka-fai, chief analyst at Midland Realty, says an increase in land supply will exert minimal effect on the luxury sector, as the bulk of new land is located in the New Territories and designated for small and medium-sized flats. More importantly, the luxury sector is supported by local cash-rich buyers and international and mainland investors looking for the best possible returns amid concerns about the depreciation of the United States dollar and low interest rates across the globe.
Lau, however, points out that it is too early to assess the real impact of the revised land sales strategy given the uncertainty over how far the government may go in stepping up the programme.
'Some people consider the promise to increase land supply is as futile as fetching water from far away to put out a fire that is burning next door because the flats cannot be completed overnight. But we need to look at the whole picture. Every time a decent size of land goes on sale, the market is taking it as a barometer on how developers view the future and where prices may go,' he says.
While the application list system is designed to provide a land bank for developers to meet their own needs in a timely manner, it is developers who hold the trigger. The government has a passive role, which could be partly responsible for the drastic reduction in land supply over the past decade.
'The application list system has a big role to play in stabilising the property market,' Lau says.
'The government is trying hard to maintain a flexible land sales programme by partially resuming sales through auctions and tenders. This is a good approach, giving itself more flexibility to respond to unexpected and abrupt market changes, particularly those in relation to problems elsewhere around the world.'