Hong Kong property

Hong Kong’s first private auction of farmland flops, in a setback to plan to bolster housing supply

The asking price of HK$370 million, or HK$3,100 per square foot before adding the conversion premium, was much higher than any comparable price in surrounding areas

PUBLISHED : Monday, 11 June, 2018, 7:25pm
UPDATED : Monday, 11 June, 2018, 11:00pm

Hong Kong’s first private auction of convertible farmland failed to find a buyer, in a setback to the city government’s plan to make more plots available for the construction of residential buildings.

Not a single person out of nine registered bidders showed their hand during 30 minutes of hushed proceedings at the auctioneer’s office in Central on Monday, even though 40 people showed up at the sale, where 10 plots of land in Yuen Long measuring a total of 119,000 square feet were up for grabs.

The land plots were valued at a combined HK$370 million (US$47.2 million), or HK$3,100 per square foot on average, before including the premium needed to convert their usage from agriculture into residential.

Still, the auctioneer put on a brave face, saying he was satisfied that more than 100 inquiries had been received on the sale. “I think the response was good enough,” said Alger Cheng, general manager of CS Property Group, which conducted the auction. “The collection of 10 plots of land is very attractive.”

The cold response was probably due in part to the remoteness of the plots, and the fact that they were not connected with each other, being distributed variously near Yuen Long and Long Ping and the Tin Shui Wai MTR station.

In addition, there was also the lack of infrastructure and amenities near the sites, as well as a complicated ownership structure involving the deed holders, opposition by interest groups and the possibility of compensation that must be paid to existing occupants, analysts said.

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The lack of bidders means less supply for the city’s usable land bank for development into housing. Homebuyers have already been struggling in what has been the world’s most expensive residential property market for two years running, with monthly average prices rising for 25 consecutive months.

The asking price for the plots may have been too high, considering that the successful buyer would have to pay a premium to convert the usage rights, which would eat into the acceptable market price and profit margin of any residential project that was built on the land, analysts said.

Unconverted farmland normally sells for between HK$300 to HK$600 per square foot, while unconverted suburban land in a residential zone may cost as much as HK$1,200 per square foot, according to an estimate by Vincent Cheung, deputy managing director for Asia valuation and advisory services at Colliers International in Hong Kong.

“The plots have already been converted to use as open storage, which can increase the land value to about HK$1,000 per square foot, but that is still not HK$3,000 per square foot,” said Cheung. “It is better to just use the land for storage.”

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The auction, the first of its kind, was called by the Tang family, one of the largest clans in Hong Kong’s New Territories. It was meant to have been the test case for the government-appointed Task Force on Land Supply to tap into private agricultural land reserves, as a short- to medium-term option for boosting the supply of flats.

“The price of the land depends on the zoning of the land,” said George Wong Chi-fung, a surveyor at Ricacorp (CIR) Properties in Hong Kong. “If the farmland is in a region that can be converted to residential use, the price may be higher, but as the buyer needs to pay a premium to convert the land to other uses, the auction may fail if the price is high.”