Hong Kong property: plot of land for flats in Kennedy Town fetches just 6 bids as high interest rates, market gloom deter developers

The site at the junction of Sai Ning Street and Victoria Road, expected to yield 450 flats, drew far fewer bids than expected
The anticipated lengthy development period for the site may also have deterred potential bidders, analysts said

Hong Kong property

Lam Ka-sing

Published: 7:42pm, 30 Jun 2023

Why you can trust SCMP

The first government land tender of this financial year ended up attracting far fewer bids than expected as the prospect of further interest rate hikes and new housing supply dimmed the outlook for Hong Kong’s property market.

The tender for the site at the junction of Sai Ning Street and Victoria Road in Kennedy Town fetched just six bids on Friday, according to the Lands Department. The land, on the western side of Hong Kong Island, is expected to yield about 450 flats, some with a sea view.

Alex Leung, senior director at CHFT Advisory and Appraisal, had expected somewhere between 12 and 15 bids.

“I considered the land in Kennedy Town a rare opportunity as it is an urban area. The scale is also optimal and fits medium to large-scale developers,” said Leung. “Obviously, I was over-optimistic. Developers are far more conservative than they were a few months ago.”

The construction of a temporary bus terminal next to the site while the existing one on the plot is replaced by a new one will prolong the development period, and this might have deterred some potential bidders, Leung said. The high interest rate environment makes the long development time frame more unpalatable because it will increase the cost of the project.

08:01

A glimpse inside Hong Kong’s notorious subdivided homes

Local Chinese media reported that the six bids came from CK Asset, Sun Hung Kai Properties, Wheelock Properties, a joint venture between Sino Land and China Merchants Land, K Wah International and Great Eagle Holdings.

CK Asset, the flagship property developer of billionaire Li Ka-shing, confirmed to the Post it had submitted a bid, while Sino Land confirmed its joint bid with China Merchants Land.

“Developers may be adopting a wait-and-see attitude for the first land sale of this financial year,” said Cyrus Fong, head of valuation and advisory at Knight Frank.

“Although sentiment in the property market improved slightly at the beginning of the year after all the anti-pandemic measures were scrapped and the border reopened, the market has started to slow down in the middle of the year.”

Another deterrent may have been the presence of a nearby public mortuary that is not due to be moved elsewhere until 2028 at the earliest, said Fong. He said this would put some people off living there.

The land, being located on Hong Kong Island, is attractive and quite rare, said Quinly Wan, director of Hong Kong property development and leasing at K Wah International. She said the long development period had been reflected in K Wah’s bidding price.

Wheelock said the reasons for its bid included the site’s proximity to another of its developments and an MTR station.

Surveyors have slashed their valuations for the parcel. Pruden Group cut its estimate by the most, from HK$9,000 (US$1,148) per square foot in February to between HK$5,000 and HK$5,300 per sq ft on Wednesday, because of high cash flow requirements and an estimated nine-year development period. That takes its valuation for the whole plot down from HK$2 billion to as little as HK$1.2 billion.

Midland Surveyors reduced its valuation from HK$9,500 per sq ft in May to HK$8,500 per sq ft on Wednesday, or from HK$2.31 billion to HK$2.07 billion, because of cautious market sentiment, falling house prices and high interest costs.

A nearby parcel of land sold for around HK$9,500 per square foot in November.

Eddie Yue Wai-man, the CEO of the Hong Kong Monetary Authority, warned in June that the cycle of rising interest rates was far from over, despite the de facto central bank hitting pause following 10 straight increases since March 2022.