Hong Kong property

Hong Kong government changing its policy to accept lower land premiums

PUBLISHED : Friday, 05 February, 2016, 7:37pm
UPDATED : Thursday, 13 July, 2017, 8:25am

The Hong Kong government is changing its policy to accept lower land premiums in a bid to stimulate buying by developers in a move that industry experts believe will continue if the market malaise persists.

The Lands Department said on Friday it had received six bids for the Shan Tong Road plot in Tai Po , where surveyors have revised down their estimation by 20 per cent to HK$3.68 billion due to the previous poor land sale outcomes.

The tender closed Friday.

“The response is definitely not an encouraging sign,” said Alvin Cheung Chi-wan, associate director at Prudential Brokerage, “With home prices falling, the government also needs to face reality to mark down land sale prices.”

He expected major developers were not in a hurry to replenish their land banks unless land prices drop to an attractive level.

Vincent Cheung, executive director for valuation and advisory services in Asia at Colliers International, sees the government’s prompt response to the property correction by lowering their land sale prices as positive.

“It will reduce the risk of withdrawals from their tenders,” he said.

On January 25, a site that went up for tender in Au Tau, Yuen Long was withdrawn as all bids were below the undisclosed reserve price set by the government.

Sites will not be sold if offer bids by developers are below the reserve price. The last time a site was withdrawn from tender was in November, in Tsing Yi.

Land prices fell or rose more sharply than the physical property market, Cheung said.

So far, Hong Kong home prices have fallen 10 per cent from the peak in September last year but land prices have tumbled nearly 20 per cent.

For instance, the levy for phase 10 of Lohas Park development was HK$1.65 billion, or HK$2,044 per square foot when MTR Corp opened the project for tender on Thursday, according to people who read the tender document.

The land prices fell 19.68 per cent within a month after MTR Corp awarded the phase nine portion to Wheelock & Co at HK$2,545 per square foot in December. The land premium was determined by the Lands Department as MTR Corp is acting as an agent to sell the site.

“We are surprised by the government’s fast and bold action in reacting to the abrupt change of market sentiment. It shows the administration’s determination to accelerate land sales and to ensure its housing target will be met,” said Victor Lai Kin-fai, chief executive of consultancy Centaline Professionals.

He said Centaline has revised down the valuation of the Shan Tong Road plot by 20 per cent as a result of the disappointing land sale outcome on Wednesday.

On February 3, the Lands Department awarded a residential site in Sham Shui Po to Vanke Property (Overseas), a Hong Kong property arm of the mainland’s largest builder China Vanke, for HK$1.3 billion, at the low end of the market estimate of HK$1.23 billion to HK$1.84 million.

Lai said the firm has cut estimated valuation for the site to HK$3,200 per square foot from the original of HK$4,000 per sq ft. With a gross floor area of 1.15 million sq ft, he said the site could fetch a bid of HK$3.68 billion.

He attributed the readjustment of the land cost was also due to fact the plot faces a potential judicial review that could stall its sale.

“The site is pending a judicial review and coupled with a large supply of new flats in Yuen Long will also affect developers interest in the site,” he said

The Shan Tong Road site attracted bids from developers including Cheung Kong Property, Henderson Land Development, Sino Land in partnership with Vanke Property (Hong Kong) Company, and Emperor International which formed a partnership with Grand Ming Group Holdings.

Taking into account the land cost and construction cost, he believes the total investment for the project would need HK$8 to HK$9 billion.

“With such a huge investment, developers will become more selective in their land acquisition,” said Lai.