HK Govt Cancels $4.1B Peak Land Sale as Developers Lowball Luxury Site

The Hong Kong government on Tuesday cancelled a land sale for the first time since January 2016, as it withdrew a luxury site near Victoria Peak which it had hoped would bring bids as high as HK$32.3 billion ($4.1 billion).

According to government documents, the Lands Department withdrew the sale because “the tendered premiums did not meet the Government’s reserve price for the site”, meaning that none of the five bids offered by developers before the tender closed on last Friday met the auction reserve price of HK$32.3 billion.

The luxury residential site, located at Mansfield Road on the south side of Victoria Peak, had attracted five bids from major Hong Kong developers including Sun Hung Kai Properties, Henderson Land Development, CK Asset Holdings, K Wah International, and a consortium comprised of New World Development, Nan Fung Development, Chime Corporation Limited, China Overseas Land & Investment, Wharf (Holdings) and Sino Land.

“I think the reserve price set by the government is too aggressive,” said Thomas Lam, head of valuation and advisory at Knight Frank in Hong Kong. He said developers should like this site, however, their decision will also be influenced by a variety of concerns as the city’s housing market shows signs of cooling, adding that, “developers will consider all factors such as cost of borrowing, holding cost, proposed sales price and vacancy tax when they calculated the tender price.”

Precious Land at the Peak

Tender documents issued by the government show that the plot occupying 2, 4, 6, 8, 9, and 11 Mansfield Road is approved for construction of residential buildings up to a height of 13 storeys with a maximum gross floor area of 37,561 square metres (404,300 square feet).

Lam explained that, according to Knight Frank’s expectations earlier this year, the site might have brought bids from developers equivalent to HK$65,000 to HK$80,000 per square foot of built area. At that price the land would have sold for HK$26.3 billion to HK$32.3 billion, putting the government’s auction reserve at the upper end of the consultancy’s expectations.

With construction costs of around HK$5 billion, development of the project could be expected to cost the winning bidder HK$32 billion to HK$37 billion, which could then be in line to sell super luxury houses built on the land for a minimum of HK$150,000 per square foot, while apartments could bring in around HK$95,000 per square foot.

According to sales records maintained by the Hong Kong Lands Department, the Mansfield Road site is the first plot to be offered in the Victoria Peak area since 2011.

It is unknown what prices the competing bidders offered to the government for this plot, however, Lam implied that the expectation might not be in line with the current market mood. “To me, developers are all positive but the reserve price is too aggressive as the government has not tendered any site at the peak for a long time,” Lam told Mingtiandi in an email interview.

The senior consultant also mentioned that the cancelled land sale may be related to recent developments such as the prospect of a US-China trade war and a bumpy stock market.

Hong Kong Real Estate Market Slows Down

Alongside the cancelled land sale on the Peak, there are other signals that the Hong Kong real estate market has been heading down since July this year.

According to statistics provided by Cushman & Wakefield, the city’s residential market recorded 6,966 transactions in August, down by 20.8 percent from the 8,796 deals closed in July and lagging June’s total of 9,250 by 26.8 percent.In its Hong Kong residential market report published in July, the property consultancy predicted that Hong Kong’s high-flying residential market will face increasing pressure amid growing foreign and domestic uncertainties in the near future.