Home price declines hit development site values

The sharp correction in new home prices has accelerated the pace of decline in land values, with development sites increasingly being sold for close to or below construction cost, a rare phenomenon in Hong Kong.

"For years in Hong Kong, it's been exceedingly rare to see sites changing hands for less than construction cost," said Alfred Lau, a property analyst at Bocom International.

He said land prices fell or rose more sharply than the physical property market. "For instance, land price will drop 15 to 20 per cent if there's a 10 per cent correction in home prices," he said.

The construction cost for mass residential projects has reached HK$4,000 per square foot, and the development sites sold in recent government tenders indicate that land prices have fallen to that level.

The Lands Department announced on Wednesday that a residential site in Tai Wai, Sha Tin, had been sold to Far East Consortium for HK$148 million. That translated into an accommodation value (land price per square foot divided by gross floor area) of HK$3,336 per square foot. The market originally expected the site, which could yield a total gross floor area of 193,537 square feet, could attract a bid of at least HK$157 million.

Last month, Sun Hung Kai Properties outbid 10 other developers to win a residential site in Ma On Shan for a lower than expected HK$1.83 billion, or HK$4,241 per square foot. The price tag per square foot was 18 per cent less than for a nearby site sold to Cheung Kong for HK$2.9 billion, or HK$5,160 per square foot, in November 2012.