A four company consortium featuring some of Hong Kong’s biggest developers was announced as the winner of a government tender for a residential site in the city’s Kai Tak area today, picking up the prime plot at what could be a deep discount.
The joint bid between industry titans Henderson Land, New World Development and Wheelock & Company, together with Empire Group, a developer formerly run by Walter Kwok, who passed away late last month, were awarded the 104,475 square foot (9,706 square metre) piece of the former Kai Tak runway at a price of HK$8.33 billion ($1.06 billion), according to an announcement by the city’s Lands Department.
The price for the site, which faces the Kowloon East side of the former runway, works out to HK$14,502 per square foot for the 574,610 square feet of homes permitted to be built on the site. That rate is more than 18 percent below the HK$17,776 per square foot that Sun Hung Kai Properties paid for a nearby site in May of this year.
Slowing Home Sales Bring Down Hong Kong Land Prices
A recent downturn in Hong Kong’s property market appears to be the culprit in this case of vanishing land value, as average home prices in Hong Kong fell for the first time in 29 months during August, with the rate of decline only accelerating in September, the most recent month for which government data is available.
The lower than expected price is expected to have an impact on two more sites set to be auctioned by the Lands Department on the former airport runway before the end of this year, with the tender for the next site due to close this Friday.
Being the harbinger of changing land prices is becoming a familiar role for the former airport site, which was the setting for record high bids by China’s HNA during late 2016 and early 2017 when the now financially-troubled mainland conglomerate purchased four residential sites in the Kowloon East district for a combined HK$27.12 billion. HNA’s set of 2016-2017 Kai Tak purchases more than doubled the previous record for land prices in the area and exceeded analysts’ estimates by nearly 50 percent.
Sun Hung Kai’s Kai Tak purchase in May set a record for the biggest land expenditure ever in the city, with the developer’s winning bid exceeding by 46 percent the previous record price for a residential site in the city.
Project Could Yield Up to 1,200 Homes
The Henderson-New World-Wheelock-Empire joint bid bested solo offers from CK Asset Holdings, Sun Hung Kai Properties, K&K Property Holdings, Jantix Renewal Development Limited, China Overseas Land and Investment, and a unit of Goldin Group for the site. Another joint bid for the parcel came from K Wah International Holdings together with Sino Land.
The site is expected to yield 900 to 1,200 luxury homes in what is now Hong Kong’s hottest area for development of both residential and commercial projects.
Thomas Lam, head of advisory and consulting for Knight Frank in Hong Kong, who spoke with Mingtiandi before the tender results were announced, estimated that, including construction expenses, the total cost of development for the Kai Tak project would come to between HK$11 billion to HK$12 billion.
Market Outlooks Cools Down Hong Kong Market
The discounted site sale comes after the Lands Department last month cancelled the auction of a parcel on Victoria Peak expected to be worth HK$4.1 billion after bids from developer for the luxury project failed to meet the reserve price for the tender.
Developers in Hong Kong have grown more cautious during the most recent months after a rising interest rates and the prospect of a protracted US-China trade war slowed housing sales in the world’s highest-priced real estate market.
Registered sales of second-hand properties reached just 1,510 units during the first three weeks of October, according to the Lands Department, down by over 21 percent from the 1,920 deals registered during the same period in September.