Government land sales are doing something they haven’t done since 2009
A government land site recently fetched a record price at auction, bearing parallels to conditions in 2009, according to one consultant, who believes a further rally in home prices is likely
Recent record-breaking land sales could be signalling a sustained rise in Hong Kong home prices, according to JLL’s head of valuation advisory services and international director Lau Chun-kong, who said current conditions resemble those of 2009, which preceded a multi-year uptrend that eventually lifted prices to a record.
Earlier this month, two government sites were purchased by Hong Kong developers at record prices, stirring up the already hot land market as cashed up mainland rivals moved in.
Local developers confidence has returned as Chinese economic growth met estimates and global interest rates remain low.
He said the price action was also fuelled by signs that the government is struggling to procure new land for development.
“The government faces challenges in getting land everywhere. People start questioning if the government can meet its land supply target in the long term,” Lau said.
The keen bidding among developers at home and from the mainland indicated their confidence in home prices will receive support as supply remains tight, he said.
Though the government will likely meet its target to supply 93,000 private flats by 2019, he said the market has concern over the post-2020 land supply.
“At this moment, we are not sure if developers’ market view is right or wrong. But we see many developers eager to enter the land market,” he said.
On October 13, a joint venture formed by Sino Land and Empire Holdings landed a commercial site in Wong Chuk Hang, Abredeen for HK$2.53 billion, or HK$8,872 per square foot, a record for a land auction on Hong Kong Island. The joint venture, in which Sino has 60 per cent and Empire holds 40 per cent, said last week the total investment cost would be HK$3.3 billion.
The sale came eight days after the Lands Department awarded a luxury residential site in Beacon Hill, Kowloon Tong for HK$7.268 billion, or HK$21,016 per sq ft. The sale represents a record in Kowloon Tong in terms of price per square foot.
“Developers have to dig deeper into their pockets if they want to win. In the Wong Chuk Hang commercial site, the winner had to defeat 23 bidders before securing the plot,” he said.
With intensifying competition, government sites have been selling for 20 to 70 per cent above market expectation since August.
Lau recalled a similar trend in 2009. Land values kept rising due to tight supply, fuelling a multi-year surge in home prices, which eventually peaked in September last year, having risen 145 per cent during the six-year period.
Hong Kong has the least affordable housing among global financial centres and is at risk of a bubble, despite prices dipping since last year, according to a UBS study released last month.
Hong Kong’s residential property has the highest price-income ratio among the 18 financial hubs surveyed in the UBS global real estate bubble index, with a score of 18.5, ahead of London, Paris, Singapore and New York.
Based on the survey’s methodology, a worker earning an average HK$15,055 a month would need to work for 18.5 years to afford a 60 sq metre flat near the city centre. Even if the income was doubled, the worker would still “struggle to afford an apartment of that size”, UBS said.
“Maintaining a stable land supply is the only way to lower home prices to a reasonable level.
The general public should support the government in acquiring land for development,” Lau said
The government has encountered mounting opposition to its plan for Wang Chau, Yuen Long. The development will provide 4,000 public housing units in the first phase. Another important site is the rezoning of a driving school in Ap Lei Chau to make way for a 1,400 private flats.
To solve the land shortage, Lau proposed that the government should put in additional public facilities or increase open spaces in the affected area in order to win support from local residents.