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Kai Tak highway runs past the Kai Tak site, where residential buildings are under construction. 27SEP19 SCMP / Martin Chan

Hong Kong’s government can turn its ‘rotten luck’ on Kai Tak land sales into a windfall for building homes, analysts say

  • Commercial sites that failed to sell since January 2019 can generate 4,000 new homes if converted into residential use, Centaline Surveyors says
  • Residential plots in Kai Tak can fetch twice as much as commercial plots, a potential boost to city’s stretched budget
Hong Kong can end a string of “rotten luck” in its recent public land tenders involving the former international airport site in Kai Tak by converting them into residential use to ease the city’s chronic housing shortage, analysts said.
The conversion could help the government reach its annual land-supply targets while boosting its coffers, according to Centaline Surveyors. The idea is overdue as other facilities in the area, such as the Sports Park, are springing up fast, real estate consultancy Knight Frank said.
The government has failed to find buyers in three commercial sites on the east side of Kowloon Bay for various reasons, crimping its revenues and ability to increase public housing. The stretch coincided with anti-government street protests and the coronavirus outbreak that sent the city’s economy into a recession.

“Selling land needs right timing and the government has had rotten luck in finding buyers for commercial sites in a poor economic climate,” said Leo Cheung, corporate development director of valuations and property management at Prudent Holdings. “The land conversion idea can help support its land-supply targets.”

Financial Secretary Paul Chan Mo-po broached the idea on May 14, a day after the government withdrew Site 4, Site 5(B) and Site 10 in Area 2A as bids came below its undisclosed reserve price. Four parties including Sun Hung Kai Properties and CK Asset Holdings had expressed interest in the first tender of the new financial year.

The government would consider converting the Kai Tak commercial sites for residential purposes, Chan said at a public event, without specifying any particular plot. The Civil Engineering and Development Department is conducting a technical feasibility, he added, without elaborating.

Financial Secretary Paul Chan Mo-po floats the Kai Tak land conversion idea on May 14, a day after a failed tender for a commercial site. Photo: Sam Tsang
The May 13 tender was the third failed sale since Hong Kong carved up the former airport site into redevelopment parcels. The plot known as Area 4C Site 5 was withdrawn in January 2019, while Area 4C Site 4 failed to sell in a September retender exercise.

The three failed tenders have cost the government at least HK$21.2 billion in missed revenues based on estimates by three property surveyors. Covering a total area of 430,100 square feet (39,957 square metres), they can potentially add 4,000 new homes to the existing housing stock.

“The proposed change to residential will certainly receive general support from Hongkongers, given that the government has struggled to ease housing shortage,” said Victor Lai Kin-fai, managing director of Centaline Surveyors.

The former airport site has contributed its fair share to the city’s treasury since at least June 2013. In the just-concluded year to March 31, it contributed to a record haul of HK$110.07 billion from land sales, including other record-setting tenders. It could have been higher had Goldin Financial paid up, instead of walking away from its winning bid,

The last flight out of Kai Tak airport took place in 1998, a year after the handover to China, with the operations relocated to the reclaimed site on Chek Lap Kok island.

In a 2011-12 policy address, the government unveiled its vision of turning an area comprising Kai Tak, Kowloon Bay and Kwun Tong into the city's second core business district, to complement the bustling Central district and ease rocketing property prices.

The plan development for Kai Tak covers 328 hectares of land to accommodate 134,000 residents in 49,900 housing units. Five per cent of the site allocated for commercial use, 13 per cent for residential and as much as 30 per cent for open space.

Much still needs to be done after almost a decade.

The government had failed to meet its land supply targets in two of the past five years. In the financial year just ended on March 31, it provided land bank sufficient for building 12,190 flats, or 9 per cent below its aim. The government has set an average 18,800 units as its annual target from 2019 to 2023.

The cumulative shortfall in public housing, totalling 23,300 units since 2013, is equivalent to about two Taikoo Shing Estates on Hong Kong Island, according to report published by local think tank Our Hong Kong Foundation in April.

Kai Tak’s residential land soars to record HK$25.1 billion price tag as Sun Hung Kai wins tender

Property developers have been reluctant to place big bets given the large investment outlay and long gestation period, said Thomas Lam, head of valuations and advisory at Knight Frank. Converting them into residential use is “a better option” and could generate a windfall to the city’s coffers, he added.

Residential plots in Kai Tak can fetch up to HK$11,000 per sq ft, almost double their valuation as commercial sites, Lam estimated.

“The [Kai Tak] site cannot wait any more,” said Thomas Lam, head of valuations and advisory at Knight Frank. “The Sports Park nearby is going to launch very soon. It makes no sense to let such a big site nearby sit empty when the park makes its grand debut.”

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