A land parcel on what was once the take-off point for Hong Kong’s international airport, and the first housing site to be made available on a former Kai Tak runway, failed to take flight with developers on Friday when only eight builders made an offer on the residential plot.
The site Kai Tak Area 4B Site 3 at the city’s former airport in Kowloon West is one of three residential plots slated for sale by the city’s Lands Department in the second half of this year, but may have been grounded by a recent downdraft in the city’s housing market, where housing prices have suddenly begun falling after a nearly-three-year bull run.
The lukewarm turnout for the harbourfront site stands in contrast to the record HK$25.16 billion ($3.2 billion) that Sun Hung Kai Properties agreed to pay for a nearby parcel in May, when the developer made that Kai Tak residential site Hong Kong’s most expensive plot ever.
Harbourview Site Brings Tepid Response
The 104,000 square foot (9,661 square metre) Kai Tak plot is approved for construction of up to 575,000 square feet of residential space, and will likely be developed into high-end homes, according to Thomas Lam, head of advisory and consulting with Knight Frank in Hong Kong.
The tender for the site is seen as setting a benchmark for auctions of two more Kai Tak residential plots which the city has scheduled for sale before the end of the year. Now, estimates of the potential sale value of those properties have been adjusted downward by as much as 15 percent, according to industry analysts quoted by the South China Morning Post, after property prices dropped in August and September.
According to Thomas Lam, the site benefits from its views of Kwun Tong bay, but also suffers from some restrictions on development. “The developer is required to build and maintain pavements near the site,” Lam noted. He added that, “Commercial facilities nearby are also very limited.” However, since the site offers sea views facing Kwun Tong bay, it might be developed into a high-end residential development, he added.
Kai Tak Sale Attracts the Usual Suspects
The site located at Kai Tak attracted eight bids from major local developers and mainland real estate companies.
Solo bidders included Li Ka-shing’s CK Asset Holdings and Sun Hung Kai Properties, as well as Golden Sphere Developments Limited, China Overseas Land & Investment, K&K Property Holdings and Jantix Renewal Development Limited.
Hong Kong major developer Henderson Land made a joint bid with Empire Group, a developer formerly run by Walter Kwok, who passed away late last month; together with New World Development and Wheelock & Company.
Another joint bid came from K Wah International Holdings together with Sino Land.
Lam judged the eight bids as a fair result for the tender process, considering the high number of joint bids. According to his expectation, the total development cost, including the land purchase and construction expenses would come to between HK$11 billion to HK$12 billion — an investment sum beyond the reach of small to mid-sized developers.
Activity Slows in Project Hub
Kai Tak, once home to Hong Kong’s international airport has been the point of sale for 13 land plots in the last few years.
Apart from Sun Hung Kai’s record-breaking May purchase, the redeveloping area in Kowloon East was the stage on which HNA shocked the Hong Kong market by paying a total of HK$27.12 billion to buy four residential sites from late 2016 through early 2017.
Since that time HNA, still carrying as much as $100 billion in debt from its project ambitions and other acquisitions, has sold off three of those four sites to local champions Wheelock and Henderson Land.
Hong Kong Housing Market Continues to Slide
The lower than expected level of enthusiasm for this latest Kai Tak site serves as the newest sign of Hong Kong’s latest real estate reality
Last month, a government auction of a site on Victoria Peak expected to be worth HK$4.1 billion was cancelled after the rare luxury plot failed to bring a single bid that matched the government’s auction reserve.
According to recently released government figures, an index of Hong Kong home prices dropped 1.44 percent in September, falling for the second straight month after 29 straight months of increases.
The volume of homes being bought and sold in the city has also slipped, with registered sales of second-hand properties totalling just 1,510 units during the first three weeks of October, according to the city’s Lands Department, down by over 21 percent from the 1,920 deals registered during the same period in September.
Lam said that he expects that housing prices might drop still further in 2019. “The residential market now is under mild correction,” Lam pointed out. “I expect that this correction will last for 1-2 years.”
“In 2019, the residential price will drop about 10 percent subject to the economy, interest rates and the Sino-US trade war,” said Lam, “in the longer term, I am quite positive on the Hong Kong property market as the land and housing supply is limited after 2022.”