Hong Kong property

First land plot for sale on the former runway at Kai Tak receives ‘lacklustre’ response from developers

  • A total of eight bids were received for the first site up for sale on the former runway at Kai Tak, according to the Lands Department
PUBLISHED : Friday, 02 November, 2018, 6:43pm
UPDATED : Friday, 02 November, 2018, 11:04pm

The first residential plot for sale on the runway of the city’s former Kai Tak airport received eight bids from property developers at the tender close on Friday, reflecting a weakening appetite for land acquisitions as the city’s property market comes under pressure amid a worsening US-China trade war and rising interest rates.

Ahead of the tender, property analysts had cut estimates on the value of the site, with a gross floor area of up to 574,615 square feet, by as much as 15 per cent.

“It is worse than we expected. Last year, similar sized plots in Kai Tak usually can attract around 15 to 20 bids,” said Alvin Lam, director at Midland Surveyors. “Developers do not want to take much risk as they are seeing a souring market.”

The site in Kowloon East, overseeing Victoria Harbour, is the 15th plot of Kai Tak land sold by government tender since 2013. Analysts said the tender was closely watched because it was expected to set a benchmark for the remaining sites on the runway.

Within a couple of months, the perspective that we hold towards the market has changed, from bullish to bearish
Hannah Jeong, Colliers International Hong Kong

“The developers are much more cautious, particularly after The Peak site was scrapped,” said Hannah Jeong, senior director, valuation and advisory services, Colliers International Hong Kong.

The Mansfield Road site at The Peak was withdrawn from sale on October 16, becoming the first site to fail at auction since 2016.

The Kai Tak development aims to house up to 90,000 people, offer 62.43 million sq ft of office space and create more than 83,000 jobs by making it the city’s next Central.

In May, Sun Hung Kai Properties paid a record HK$25.16 billion (US$3.3 billion), or HK$17,776 per sq ft, at a nearby site at Kai Tak.

The result prompted surveyors to upwardly revise their projections for the remaining sites in the Kai Tak area.

However, market sentiment reversed lower in the intervening period.

“Within a couple of months, the perspective that we hold towards the market has changed, from bullish to bearish,” Jeong said.

The site is expected to feature 900 to 1,200 luxury flats fetching roughly HK$33,000 per sq ft, according to Knight Frank.

A price index that tracks lived-in homes in Hong Kong fell 1.44 per cent in September on month, the second straight monthly decline, according to data released by the government’s Rating and Valuation Department on Wednesday.

The drop was significantly larger than the 0.08 per cent decline in August on month.

Several investment banks have forecast a drop in Hong Kong’s house prices, some by as much as 15 per cent in the next year.

“The [rising] interest rate will not only damage buying power, but will also raise financial costs for developers,” said Thomas Lam, executive director, Knight Frank.

He added that developers may also face the added burden of the government’s proposed vacancy tax by the time new projects are completed.