HK$5 million Kai Tak flat deals a blow to Hong Kong government’s affordable housing plan

China Overseas Land & Investment, which is building apartments on the site of Hong Kong’s former airport, set a higher-than-expected price range on Thursday, delivering a blow to the city government’s programme to make housing affordable for residents during an election year.

China Overseas will sell One Kai Tak for between HK$15,080 and HK$18,418 per square foot before a 15.5 per cent discount. That means the smallest unit, measuring 386 sq ft, will cost about HK$5 million, or HK$12,742 per square foot after discount.

Alfred Lau, an analyst at Bocom International Securities, said the selling price was higher than his expectation. “The price means the developer is treating the project as other private housing developments. But the project should be traded at a discount to private housing, given its resale restrictions,” he said.

Chief Executive Leung Chun-ying launched the “Hong Kong Property for Hong Kong People” programme in early 2012 to help local homebuyers amid a sizzling property market in which nearly 40 per cent of new flats were sold to mainland Chinese.

Reserved property scheme may become policy

However, in a policy turnaround, the city’s top official on development said on Tuesday that the pressure to maintain the “Hong Kong Property for Hong Kong People” programme had eased because currently fewer than 2 per cent of the buyers of local properties were from mainland China, attributable to the 2013 introduction of a punitive stamp duty on non-resident buyers.

“Temporarily we will not keep introducing more land only for Hong Kong people because the percentage is so low,” Hong Kong’s Secretary for Development Paul Chan Mo-po said in an interview with the South China Morning Post. “We will also review citizens’ level of acceptance on the two developments recently for sale.”

China Overseas Land won the two sites under the scheme in June 2013 for a total of HK$4.54 billion, equivalent to an estimated average land cost of HK$5,100 per square foot.

Under the scheme, units at One Kai Tak phase one are exclusively for buyers who hold Hong Kong permanent identity cards. If there is more than one buyer, at least one must hold a permanent identity card. All units are prohibited from resale to non-Hong Kong permanent residents for a period of 30 years or before June 28, 2043. Each rental lease term is limited to five years but open to all renters, including non-residents, and flat owners are required to seek consent from the Lands Department before selling, renting or securing mortgage loans for the units.

China Overseas Land said on Thursday that the first batch of 110 units, measuring 386 sq ft to 833 sq ft, would be offered at HK$5.82 million to HK$14.6 million. After discount, the prices would be reduced to HK$12,741 to HK$15,562 per square foot.

Sammy Po, chief executive at Midland Realty’s residential department, said the average discounted price was about HK$14,500 per square foot.

However, the developer pushed back on any suggestion that the flats had to be offered at lower prices. “I recall the government’s scheme aimed to give Hong Kong permanent residents the priority to buy flats but [I don’t recall any] requirement on selling at reasonable prices,” said Tony Yau, a director and general manager at China Overseas Property, a subsidiary of China Overseas Holdings, the parent of China Overseas Land.

Yau said the launch price was reasonable as new projects in Yuen Long were offered at HK$11,000 to HK$12,000 per square foot.

“One Kai Tak is located in an urban area and will have a [Kai Tak] MTR station in future,” he said.

One Kai Tak phase one, due to be completed in October 2017, will comprise 545 units. The whole project will comprise more than 1,100 units.

What is bad for Hong Kong homebuyers could end up being good for China Overseas Land. The developer’s net profit has increased for five consecutive years, jumping 22.5 per cent last year to HK$33.3 billion.

Its shares have risen 22.6 per cent in the past 12 months, but they fell 2.5 per cent to close at HK$25.35 on Thursday.