Mainland developers shy away from Hong Kong land tenders

PUBLISHED : Thursday, 25 May, 2017, 3:22pm
UPDATED : Thursday, 25 May, 2017, 10:30pm

Chinese companies continue to shy away from Hong Kong’s land market with just one mainland backed company known to have submitted a bid for a residential site in Yuen Long.

MTR Corp said eight developers had submitted bids for the parcel of land at Kam Sheung Road Station on the West Rail line before the tender closed at 2pm on Thursday.

Only one mainland Chinese company, China Resources Land, submitted a bid. The seven other bidders were based in Hong Kong, including Cheung Kong Property Holdings, Sun Hung Kai Properties, Henderson Land Development, Wheelock Properties, New World Development and Sino Land.

MTR Corp, acting as the agent for West Rail, postponed the tender deadline by one day to 2pm on Thursday due to a Black Rainstorm warning issued on Wednesday.

The site, which could potentially provide a total floor area of 1.24 million square feet, is estimated to be worth HK$6.2 billion (US$796 million), or HK$5,000 per square foot. The lot will provide 1,652 flats, of which 40 per cent, or 661 units, will be smaller than 538 sq ft. The project is slated for completion in 2025.

“We do not see many mainland players participating as they prefer sites in urban areas,” said Thomas Lam, head of valuation at Knight Frank.

Henderson pays US$3 billion for world’s costliest land plot at Murray Road in Hong Kong

There was a similar response to the Urban Renewal Authority’s redevelopment project at Tai Kok Tsai, which closed for tender on Thursday, with the 14 developers submitting bids being dominated by Hong Kong firms, according to property consultants.

Mainland companies, which had been setting one price record after another as they snapped up Hong Kong residential properties over the past year, did not show keen interest in the bidding for Murray Road, a grade A commercial land site in downtown Central. That tender closed on May 12.

Only two mainland companies, CCL Land and Shimao Property, submitted separate bids for the Central site two weeks ago, with seven submissions from Hong Kong players. The Murray Road commercial site was sold to Henderson Land Development for HK$23.28 billion, making it the most expensive land sale in the world.

Victor Lai, chief executive of property consultancy Centaline Professionals, believes mainland developers have become cautious in their land acquisitions in the face of the banking regulator’s move to tighten property lending to developers, effective June 1.

They will save their ammunition for residential projects in urban areas where they can generate faster cash returns than commercial projects
Victor Lai, chief executive, Centaline Professionals

“New mainland entrants heavily rely on bank loans to finance their acquisitions, while cashed up major enterprises will become selective. They will save their ammunition for residential projects in urban areas where they can generate faster cash returns than commercial projects,” he said.

Mainland Chinese investment in Hong Kong property reached an all-time high in the first quarter, with a total transaction volume of HK$36.1 billion, up 213 per cent year on year, according to Colliers International.

The West Rail Yuen Long residential site is the first tender to close after the Hong Kong Monetary Authority ordered banks to tighten their lending to developers from June 1, to guard against rising credit risk.

Under the new measures, the maximum limit for bank loans used to purchase land has been cut to 40 per cent of the value of the site from 50 per cent. The cap on loans for construction costs is 80 per cent, against 100 per cent previously. The overall cap on financing for the entire project has been reduced to 50 per cent of the expected value of the completed properties, down from 60 per cent.