Price stumble stalls land-premium deals
The fall in property prices has set back land-premium agreements, with more than 2.5 million square feet of residential development put on hold, according to deputy director of lands John Corrigall.
The Lands Department settled and received about HK$500 million in revenue from land-lease modification in the first quarter of this year.
The premium agreements were mainly for smaller-scale projects. No major premium agreements were expected in the second quarter.
'The situation is similar to that in 1998, as most developers take a wait-and-see attitude and defer decision-making,' Mr Corrigall said.
He said the Lands Department had made three offers on large-scale projects recently, but no agreement had been reached with the developers.
The largest is a Sun Hung Kai Properties (SHKP) development in Yuen Long, close to the future West Rail Yuen Long Station, which will be developed into 1.18 million sq ft of residential and commercial space.
Mr Corrigall said SHKP had verbally informed the Lands Department the offered premium was higher than it expected and it would lodge an appeal.
He declined to disclose the amount of the offer. SK Pang Surveyors managing director Pang Shiu-kee estimated the amount would be higher than HK$500 per sq ft - a total of more than HK$600 million.
Mr Corrigall said because the site was for agricultural use and the developer had limited capital tie-up before lease modification, SHKP would not make a decision until there was significant upside for property prices.
He expected most developers to defer applications for land premiums on lease-modification projects in the New Territories.
Another large-scale case is a site in Tseung Kwan O Area 55b, owned by the Mass Transit Railway Corp (MTRC), at the station on the railway extension. The total residential and commercial area to be built is about 1.03 million sq ft.
Mr Corrigall did not comment on the premium offer for the site. It was reported that the Lands Department had offered a land premium of HK$1.02 billion, representing an average price of HK$980 per sq ft.
Mr Corrigall confirmed that a premium had been offered, together with a neighbouring site in Tseung Kwan O Area 57a, which will be developed into 312,000 sq ft of residential properties.
MTRC property director Thomas Ho Hang-kwong had said the premium offer by the Government was higher than the company expected and it would look at an appeal. The company also was thinking of dividing some larger developments in Tseung Kwan O into smaller phases. Mr Corrigall said the MTRC was appealing against the offer for Tseung Kwan O Area 57a and he would not be surprised if it made an appeal on the Tseung Kwan O Area 55b project, because larger development had higher risk in the present market.
While most developers had deferred action on lease modification, Mr Corrigall said the Government had not set a target and would not give special discounts to developers for the sake of increasing land revenue.
But he said property prices had dropped slightly compared with six months ago and the Government would assess land premiums according to present market value. The Government expects to receive HK$10 billion from land-lease modifications this financial year, compared with HK$5.2 billion last year. A further HK$6.05 billion is expected to come from private-treaty land grants.
