Caution prevails as developers mull purchase of Hong Kong sites

Analysts warn that state of property market will depress bids for lots in Sha Tin, Tuen Mun

PUBLISHED : Wednesday, 24 July, 2013, 12:00am
UPDATED : Wednesday, 24 July, 2013, 3:10am

Developers are expected to be cautious in bidding this week for two residential sites in Kau To in Sha Tin and So Kwun Wat in Tuen Mun.

A 125,142 square foot site in Kau To is expected to attract big developers as it will offer a larger development scale.

Located in Lai Ping Road, near a plot bought by Sun Hung Kai Properties in March and another site which is currently up for tender, the site could be developed into a luxury residential project with a total gross floor area of 134,496 sq ft. It is likely to fetch bids ranging from HK$1.21 billion to HK$1.35 billion, or HK$9,000 to HK$10,000 per sq ft, said valuers.

The surrounding area has been earmarked for development into a new luxury residential district. The government has released several sites for sale in the area. The most recent transaction was in March, when Sun Hung Kai Properties bought a site for HK$1.42 billion, or HK$10,885 per sq ft. This was the highest accommodation value in the area.

"The development plot ratio of the new site is 2.1, which is higher than the 1.5 for the Sun Hung Kai Properties site," said Alnwick Chan Chi-hing, head of valuation and professional services at Knight Frank. "Since the development density is higher, the price will be lower than Sun Hung Kai paid in March.

Chan estimated the site would sell for around HK$1.29 billion or HK$9,600 per sq ft.

"Developers are no longer aggressive with their bidding. They don't think property prices will show solid growth as the market will be driven by government policies in the next four years," he said.

"It is also apparent that interest rates will go up in 2015 as the United States Federal Reserve said a reduction in its monetary stimulus was drawing near. And developers worry that construction costs will continue to increase."

In these circumstances developers had become risk-averse and would not submit aggressive bids for sites, said Chan.

The second site up for tender is located in Tuen Mun Road in So Kwun Wat's Siu Sau. It covers an area of 125,142 sq ft and could yield a total gross floor area of 159,372 sq ft.

The Lands Department has imposed restrictions on the site that limit the height of the development to 10 floors and require at least 175 flats to be built.

James Cheung, an executive director at Centaline Surveyors, said he had reduced his original forecasts for the two sites due to recent poor tender results.

"I have cut the valuation of the Tuen Mun site from HK$3,500 per sq ft to HK$3,200 per sq ft. I believe the site is worth about HK$510 million," he said.

The Lands Department released the sites for tender in June. Bidding will close on Friday.