Developers keen to get land bank 'bargains'
Sandy Li and Peggy Sito
Developers are expected to speed up marketing their new projects and tapping the debt market to build up a war chest to replenish their land banks when land worth an estimated HK$20 billion is sold through government tender in the next three months.
But while Chief Executive Donald Tsang Yam-kuen promised to increase land supply in his policy speech, analysts believe developers are unlikely to bid aggressively for the land parcels.
On Wednesday, Sun Hung Kai Properties won the bid for a prime residential and commercial site above Nam Cheong station on the West Rail line for HK$11.8 billion, or HK$4,470 per sq ft. This was lower than surveyors' forecast of HK$13.04 billion to HK$15.85 billion.
To take advantage of lower land prices, developers will fund their acquisitions by accelerating the launch of new projects to raise cash, according to Susanna Leung, property analyst at CLSA Asia-Pacific Markets.
'Because the market is slow, developers will not offer their new projects at a big premium to secondary-market prices,' she said.
SHKP says it will release The Wings, in Tsueng Kwan O, next week.
Analysts expect SHKP to clock up revenue of HK$7 billion if all 1,028 units are sold at an average of HK$6,000 per sq ft. SHKP has not announced the prices yet but has said it is looking at HK$10,000 per sq ft.
Lee Wee Liat, regional head of property research at Samsung Securities, said SHKP had spent HK$21.7 billion on land since July, raising its net gearing ratio, a measure of financial leverage, to 24.3 per cent from 17.1 per cent in June.
'The firm will need to raise more cash in the financial year ending in June, possibly from bank loans or the bond market, as it has done over the past 12 months,' he said. With more land becoming available at reasonable prices, developers would look for opportunities to raise money, mostly via debt channels.
Lee expects more fundraising by developers over the next few months as 14 sites worth an estimated HK$20 billion come up for tendering.
Shares of SHKP fell 2.11 per cent to close at HK$97.2 yesterday.
The lower-than-expected price paid for the Nam Cheong station site has dampened the area's secondary residential market. Property agents said sellers were cutting asking prices 3 to 8 per cent, while potential buyers were putting off buying.
'Some buyers who were in the final stages of discussions to buy flats in West Kowloon told us today they want to wait and see for a while before making any decision,' said Janny Chan, assistant director at Midland Realty's West Kowloon district.
James Au-Yeung, senior district manager for Centaline in West Kowloon, said sellers in the area were disappointed by the bid. 'They are now willing to cut prices. Some have cut as much as 8 per cent.'
The year Sun Hung Kai Properties was founded.
- It was listed on the Hong Kong stock exchange in 1972