Hong Kong land sale

Hong Kong scraps sale of The Peak land plot after bids failed to meet US$6.2 billion expected price

The government says bids received did not meet the site’s reserve price

PUBLISHED : Tuesday, 16 October, 2018, 6:54pm
UPDATED : Wednesday, 17 October, 2018, 5:42pm

A luxury residential site on The Peak has been withdrawn from sale for the first time since 2016, a sign that developers are increasingly cautious about the Hong Kong market outlook as a sliding stock market, rising interest rates and the escalating US-China trade war threaten to further dampen buying interest.

The Lands Department announced on Tuesday that it had rejected all five tenders received for the purchase of the plot on Mansfield Road, The Peak, after the tender closed on Friday as “the tendered premiums did not meet the government’s reserve price for the site”.

The market has expected the site, which could yield a total gross floor area of 404,300 square feet, to fetch a record HK$48.5 billion (US$6.2 billion), or HK$120,000 per sq ft. The plot could accommodate up to 65 three-storey houses of about 5,000 sq ft each and a couple of 12-storey apartment buildings with 3,300 sq ft on each floor.

“All factors indicate that the Hong Kong property market is heading for a downward adjustment. And the buyers of these super deluxe homes will be hardest hit by the fallout of the US-China trade war,” said Alvin Cheung, associate director at Prudential Brokerage.

“In such circumstances, developers will definitely be less aggressive when it comes to land acquisition.”

All factors indicate that the Hong Kong property market is heading for a downward adjustment. And the buyers of these super deluxe homes will be hardest hit by the fallout of the US-China trade war
Alvin Cheung, Prudential Brokerage

Cheung attributed the failed land sale to rising borrowing costs, which would increase a developer’s financial burden given that two more interest rate increases are expected for this year and next.

The site, requiring intensive capital investment, was also likely to attract the same leading developers as it did this time in a future re-tender exercise, said Charles Chan, managing director of Savills Valuation and Professional Services.

“The question is whether the government will receive a better offer the next time,” he said, adding that the site could be split into two lots to lessen the capital investment pressure on developers and generate more bidders.

The sale drew bids from major Hong Kong developers including Sun Hung Kai Properties, Henderson Land Development, CK Asset Holdings and K Wah International. One of the bids represented a consortium consisting of New World Development, Nan Fung Development, Chinachem Group, China Overseas Land & Investment, Wharf (Holdings) and Sino Land.

“The government overestimated the value of the site as market sentiment sours further. The vacancy tax imposed on empty, unsold flats is another concern as super deluxe home could take as long as one year to find a buyer,” said a developer who took part in the bidding but requested anonymity.

“The Lands Department’s reserve price is probably based on the transaction prices of ultra luxury houses from the Mount Nicholson development. But it is hard to achieve similar high prices any more,” he said.

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In March, a four-bedroom, 9,217 sq ft house with a 3,969 sq ft garden and a swimming pool at No 2 Mount Nicholson fetched HK$1.39 billion, or HK$151,785 per sq ft, in a tender offer, according to sales agent Wheelock Properties. The price was marked Asia’s second most expensive on a per square foot basis.

In the statement, the government stressed that it was committed “to provide a steady and sustained land supply to the market to cater for the community’s demand for housing, commercial and business sites”.

“The government will not speculate on the reasons accounting for the bids placed by tenderers. In practice, the bids put forward depend on a myriad of factors, such as attractiveness of the individual site to the individual tenderers, as well as how the individual tenderers consider the market conditions, their respective corporate positions and development strategies,” it said.

“The government will consider disposal arrangements for this Mansfield Road site at an appropriate time.”

The land parcel, located at 2, 4, 5, 8, 9 and 11 on Mansfield Road, is the first site on The Peak to be sold by the government in eight years. It is currently occupied by six towers of government quarters that house senior government officials and judges.

In recent years, four tender exercises for government land have been cancelled as the bids fell below the reserve prices.

Apart from The Peak site, the three other cancelled sales involved plots in Yuen Long, Tsing Yi and Pak Shek Kok that were put up for tender in early 2016, late 2015 and early 2014 respectively. All three sites were successfully re-tendered.