COLI, Henderson, K Wah and Wharf Buy HK$15.95B Kai Tak Site at a Discount

As clashes between police and protesters in Hong Kong escalate, the largest piece of land on the site of the Asian financial hub’s former airport has been sold at a discount to a consortium of Hong Kong-listed developers.

The city’s Lands Department said in a statement that the consortium – which comprises China Overseas Land & Investment (COLI), Henderson Land Development, K Wah International and Wharf Holdings – is paying a land premium of HK$15.95 billion ($2 billion) for the Kait Tak waterfront residential plot known officially as Area 4A Site 2.

The price for the 50-year leasehold plot is 24 percent lower than the maximum of HK$21 billion analysts had initially expected it to fetch, and is equivalent to what China’s HNA Group paid for a Kai Tak site in November 2016. 

With the current downturn sapping developer land appetites, the plot attracted just four bids, one fewer than the most recent prior Kai Tak land sale, which was cancelled just seven weeks ago when all five bids offered came in below the Land Department’s reserve price.

Developers Taking a More Cautious Approach

Based on the project’s potential maximum gross floor area of 1.2 million square feet (111,953 square metres), the consortium is paying HK$13,236 per square foot for the rights to the new project.

Around 1,500 mid-size luxury flats are expected to be built on the 197,550 square foot site, with prices projected to fetch HK$29,000 per square foot due to their view of Victoria Harbour, according to Knight Frank executive director Thomas Lam.

“The winning price is lower than market expectations, and also fetched lower than the adjoining 4C site 1 by 27 percent on an accommodation value basis,” said Lam, adding that the price tag indicates that developers are taking a more cautious and selective approach to land buying.

The Henderson-led consortium has acquired this latest plot at a price that equates to a 27 percent markdown compared to the the unit price paid for a waterfront plot on the same strip of land by China Resources Land and Poly Property Group in June, after the sale had been postponed for one week when protests broke out.

Wheelock Properties, K Wah International Holdings and China Overseas Land and Investment previously teamed up in July to buy Kai Tak Area 4A Site 1 at a land premium of HK$12.74 billion.

Approved for the construction of just over one million square feet of completed homes, the tri-party joint venture paid the equivalent of HK$11,841.70 per square foot of housing for that Kowloon-facing project.

Lowball Bids Amid Unrest

“Due to the ongoing social unrest that has sent the property market into a tailspin, developers are not making ambitious bids,” said Charles Chan, managing director of valuation and professional services at Savills in Hong Kong.

Chan added that the city’s looming vacancy tax, which will hit developers and owners of vacant homes with financial penalties if implemented as expected next year, has also dampened interest in new land purchases.

The winning consortium shouldered aside solo tenders from CK Asset Holdings, Sun Hung Kai Properties, and a rival group bid by Sino Land Company, Great Eagle Holdings, and Chinese Estates Holdings.

“The tender result of this latest Kai Tak land sale shows that developers have become very cautious due to the uncertainties surrounding the economy and an anticipated increase in the unemployment rate,” said JLL’s head of Hong Kong valuations, Rita Wong, who added that developers often make consortium bids in challenging or uncertain times.

Falling Kai Tak Land Prices

This latest sale follows a trend toward declining land prices in Kai Tak, one of the Hong Kong government’s target development areas.

When China Resources Land and Poly purchased Kai Tak Area 4C Site 1 in June the duo paid a total of HK$12.9 billion, or the at the equivalent of HK$18,080 per square foot of potential gross floor area for the project.

Kai Tak’s most expensive plot to date was another sea-facing site which was purchased in May, before the protests had started, for HK$12.6 billion by a consortium of six developers. The group bid for that 641,168 square metre project was equivalent to HK$19,636 of accommodation, making it 33 percent pricier per square foot of housing than the plot sold this week.

“Given the political and economic situation in Hong Kong, I expect the valuation of the remaining two residential land plots to decrease by 15 percent compared to previously existing valuations,” Savills’ Chan said.

Buying Land for Homes as the Housing Market Teeters

The bargain land sale was recorded as housing prices in the city have fallen for four consecutive months, according to official data, as Hong Kong struggles with declining interest from buyers.

Transaction volumes declined in the third quarter by 40 percent from the previous three months, according to a Colliers report on Hong Kong’s residential market issued last month, with the authors noting that prices and transaction volumes were likely to stay low if the demonstrations continue.

In a report issued three weeks ago, Savills said September sales of residential properties on Hong Kong island priced over HK$10 million fell to just 10 percent of the total recorded in April, while in Kowloon and the New Territories transactions of luxury homes fell 54 percent over the same interval.