Cheung Kong's aggressive bid for Tsuen Wan site boosts sentiment

Aggressive bidding by Cheung Kong for a Tsuen Wan site up for tender last week has signalled a turnaround in sentiment and triggered new confidence among home sellers.

Cheung Kong won the tender for the Tsuen Wan TW5 Bayside commercial and residential site above the Tsuen Wan West MTR station with a bid of HK$9.63 billion, or HK$4,308 per square foot.

That was 13.4 per cent higher than the top market expectation of an HK$8.49 billion price tag, and 37 per cent higher than the price Chinachem Group paid in January this year for a nearby site without sea views.

The result stunned analysts, who had noted the poor response when the site was first offered late last year. At the time MTR Corp withdrew the offer as bids were too low.

"The market outlook has clearly changed compared with eight months ago," Joyce Kwock, an analyst from Swiss investment bank Credit Suisse, said.

"Previously, developers were cautious about land acquisition as they were unsure who would be the new chief executive and what would be the direction of new housing policies. But now the picture is clearer,"

Kwock said she believed Chief Executive Leung Chun-ying would not target the primary market of private housing, and this had eased the concerns of developers.

"But he will build more public and subsidised housing since his target is to help first-time buyers, who are not potential buyers of new private housing," she said.

Over recent months developers have been cautious in bidding for new sites, particularly large development plots. This led to several sites being sold for less-than-expected prices, notably the former North Point Estate residential site, which was sold to Sun Hung Kai Properties for HK$6.91 billion in July.

Charles Chan Chiu-kwok, managing director at Savills Valuation and Professional Services, said he believed developers would now become more active as the uncertainty in the property market had cleared.

"Sites were sold for cheaper prices previously as there was investment risk in the property market. Developers worried whether new housing policies would affect the market and this turned them conservative in making major investments and acquisitions," Chan said.

Now the new chief executive has said he would not bring down the property market, it was clear the new government would try to solve the housing problem by increasing land supply, Chan said.

"But it is impossible to increase land supply to a large degree in the short run, and since housing policy is unlikely to have a major change this has helped to restore developers' confidence in the market."

Lee Wee Liat, head of property research at BNP Paribas Securities, echoed this view.

"It was still a question eight months ago of who would be the new chief executive and what new housing policy would be," he said.

"Now that housing policy has been clarified and it is clear the government's goal is not to bring down the market, prices have not dropped but have stayed at a high level.

"If developers buy sites in such a market situation, they can still enjoy a good profit margin."

Kwock estimated that Cheung Kong could enjoy a profit margin of 24 per cent from the Tsuen Wan Bayside project if units in its development could achieve a premium of about 16 per cent over the prices of nearby estates when they come to the market in the next five years.

Lee said the new chief executive would not pursue an aggressive property market policy as his popularity was low. However that did not automatically imply that developers would become more aggressive in land acquisitions.

"It depends on the quality of sites. Developers will remain conservative as there is plenty of land," he said.

Nicholas Brooke, chairman of Professional Property Services, said developers had become more selective, driven partly by the increase in the number of large sites that have been or are being put on the market. "And also partly due to the fact that it is difficult to secure bank finance to fund land purchases in the current market and developers are essentially having to use their own money and hence the selectivity," he said.

Professor Eddie Hui Chi-man, of Polytechnic University, agreed that developers would remain cautious.

"The sites they bought this year will see units released for sales in two to three years' time. Interest rates would be in an up cycle at that time, and economic growth may remain slow. So their bidding will depend on the quality of sites," he said.