Hong Kong property in double trouble after government rejects bids for Tung Chung site, deal flow in Oct at 7-year low
- The Hong Kong government rejected all four tenders for a residential site, as they “did not meet the government’s reserve price for the site”
- Hong Kong’s property transaction volumes in October fell to their lowest level since February 2016 and the annual tally for 2023 is likely to hit a 33-year low
Hong Kong’s residential property market was dealt a double blow after the government withdrew a residential site in Tung Chung owing to low bids even as property deals in October fell to a more than seven-year low, highlighting the difficulty that the sector is facing amid economic uncertainty and high interest rates.
Hong Kong’s property transactions are likely to hit a 33-year low this year with October property sales falling by 24.9 per cent to 2,925, according to one of the city’s largest property agencies.
Last month’s property deals, which include sales of flats, car parks, commercial and industrial units, were the lowest in terms of volumes since February 2016, while the total value of transactions struck a 10-month low at HK$30.14 billion (US$3.85 billion), said Centaline Property Agency.
“The downward trend is likely to persist with total property transactions for the full year of 2023 expected to plummet to a 33-year low, reaching around the 58,000 mark,” the property agency said in a statement. In the first 10 months of the year, 50,726 deals were registered. Last year, 59,619 property units changed hands, the lowest since records began in 1991.
Centaline originally forecast property sales to hit the 60,000 level this year.
Hong Kong’s economy grew at a marginal rate of 0.1 per cent in the third quarter compared with the second quarter, according to advance estimates released by the Census and Statistics Department on Tuesday. On an annual basis, economic output expanded by 4.1 per cent.
High interest rates, which push up mortgage rates, had also risen to a 16-year high with the Hong Kong Monetary Authority (HKMA) raising rates for a cumulative 5.25 percentage points.
The US Federal Reserve is set to meet on Wednesday (US morning hours) to discuss policy rates and many analysts believe it is likely to pause its tightening campaign. The market will parse the Fed’s statements to gain insights about the future direction of interest rates.
The HKMA adjusts its rates based on the Fed’s decision, to keep the local currency’s peg to the US dollar.
The Hong Kong government rejected all four tenders for a residential site, located in Tung Chung and measuring 10,648 square metres, as they “did not meet the government’s reserve price for the site”. This is the fifth such withdrawal for the site which is expected to yield a maximum gross floor area of 37, 268 sq m once developed.
“The government will not sell a site if no bid reaches the reserve price as assessed by the government’s professional valuers,” a statement from the Lands Department said. “This is in the interest of protecting public revenue. The reserve price is set on the day of tender closure so that the latest market conditions are taken into account.”
The four tenders submitted for the parcel of land came from a joint venture of Sino Land and China Merchants Land, and from Henderson Land, Sun Hung Kai Properties and K. Wah International Holdings.
“Bids are influenced by a myriad of factors, such as how individual tenderers assess the market conditions and the attractiveness of the site, as well as their corporate positions and development strategies,” a government spokesman said. “The government will monitor the market situation closely and announce the arrangement to relaunch the land for disposal at an appropriate time.”
Although the bids are not public information, an analyst at CHFT Advisory and Appraisal said he estimated the highest bid received for the Tung Chung plot to be around the HK$2,000 per sq foot level or even lower.
Alex Leung, senior director at CHFT Advisory and Appraisal said this estimate was based on market expectations of land values in the neighbourhood. Two government residential plots in Tung Chung were sold in 2010 and 2011 at accommodation values of HK$2,378 and HK$2,708 per sq ft respectively, he added.
The low bids for the plot could have been influenced by complicated conditions to build the residential project, according to Colliers.
“I believe the bidding price this round was about HK$3,000 per square foot considering the complications and the developers’ low confidence level and that is much lower than the HK$3,776 per sq ft sold in the area by the MTR in 2022,” said Hannah Jeong, head of valuation and advisory services at Colliers Hong Kong. “The government had to withdraw the tender to balance their future revenue.”
CHFT’s Leung said the reason for the low bid could be that the infrastructure around this newly reclaimed area was not up to the mark.
“The Tung Chung East MTR Station is scheduled to be completed in 2029, i.e. six years from today, and, the sewerage system capacity for this reclaimed area would likely limit the number of flats that could be built,” he said.
“Moreover, there are many upcoming residential projects from the government and the MTR Corporation in the Tung Chung area. In short, the payback period of development in Tung Chung is long and yet the potential capital gain is not rewarding.”
