Real estate developer Henderson Land paid HK$35 million ($4.48 million) last week buying up an apartment and a shop in an aging building in Kowloon City, in an effort to buy enough of the eight-storey building to force a compulsory sale.
Despite a 65 percent drop in property transactions in Hong Kong between July and September, the top-five developer found its price of purchasing units in the 62-year-old structure had jumped by as much as 20 percent, as competing builders make their own play for control of the property at 179 to 183 Kowloon City Road.
The duel between Henderson and Hong Kong-listed Kowloon Development for control of the project, demonstrates the scarcity of sites in the world’s most expensive real estate market, as well as the pains that developers must endure to secure the land needed to maintain their pipeline of new projects.
Rivals Spend HK$100M Competing for Kowloon Prize
In this single building located at the junction of Kowloon City Road and Mok Cheong Street, Henderson and Kowloon Development have spent a combined sum of over HK$100 million since June 2017, buying up apartments and shops, in a race to secure the 80 percent of a building necessary to force a compulsory sale of the whole project.
Henderson was first to gain a foothold in the building in June last year when it bought a single home for HK$6.56 million. The developer then followed up in August this year by purchasing an additional apartment HK$9.3 million, at a unit price of HK$14,200 per square foot, according to an account in the Hong Kong Economic Times.
With this latest purchase last week, the co-developer of Hong Kong’s IFC has now spent a total of HK$50.86 million to acquire three homes and a retail store in its Kowloon target.
Kowloon Development began buying homes in the same building in July of last year, and has now purchased eight units in the project at a total cost of HK$50 million and an average cost per apartment of HK$7.55 million to HK$8 million.
The competition between the two builders is evident in the rising prices paid for space in the building, with Henderson paying HK$17,200 per square foot — a price 20 percent higher than the HK$14,200 per square foot that it paid in August — for its latest piece of the Kowloon City property.
Henderson Favours Compulsory Sales
Aggregating a controlling share of an aging building and forcing a compulsory sale has become one of Henderson’s preferred approaches for acquiring new sites.
Hong Kong law allows an owner which controls 80 percent or more in a building aged 50 years or more to petition the government for a compulsory public tender of the remaining space that it does not hold, which opens the door for patient buyers to slowly position themselves to control prime sites.
Since the beginning of this year, Henderson has applied for six compulsory sales in Hong Kong, ranking first among all real estate companies in Hong Kong in terms of compulsory sales applications, and accounting for over a quarter of the total compulsory sale applications during the period.
Among Henderson’s compulsory sale applications this year, the developer already filed an application in July to acquire a pair of residential towers, located at 4 to 22 Nam Kok Road, in southern Kowloon City, after buying up 90 percent of the space in those buildings.
That application, should it be approved, would pave the way for Henderson to build a HK$450 million project on the site, which has already been approved for development of 91,597 square metres of new homes.
Compulsory Sales Catch on in Hong Kong
As developers continue to race in the world most expensive housing market, compulsory sales, which are time-consuming but can be highly profitable, have become more popular among local developers. Statistics from Hong Kong’s Lands Tribunal show that there were 23 compulsory sale applications in the first nine months of 2018, an increase of 60 percent over the level in 2016.
One of the latest compulsory sale applications came from Hong Kong-based Rykadan Capital earlier this month. The private equity real estate firm applied to the Lands Department to redevelop the eight-storey Jaffe Mansion in Wan Chai into a 30-storey commercial complex after buying up nearly 90 percent of the building for HK$250 million.