Hong Kong’s property wildfire continues to rage after a pair of mainland developers agreed on Friday to pay a record HK$16.86 billion (US$2.17 billion) for a waterfront residential site on the city’s Ap Lei Chau island, according to an announcement by the Hong Kong Lands Department.
A joint venture belonging to Hong Kong-listed mainland developers, KWG Property Holdings and Logan Property Holdings is paying the equivalent of HK$22,118 ($2850) per square foot of gross floor area for the site. The purchase is the single most expensive purchase at a government land sale in Hong Kong’s history, with the price paid exceeding market rates by nearly 50 percent.
Following a dip during the first half of 2016, Hong Kong home prices have continued to rise since the middle of last year. The unprecedented home price rally comes despite government measures to reduce demand, including a new 15 percent stamp duty on home purchases introduced in November. Many market analysts attribute the unprecedented hunger for Hong Kong housing to restrictions on the mainland market and a sliding renminbi.
Luxury Site Draws Developer Interest
The 126,595 square foot (11,761 square metre) site on Lee Nam Road on Ap Lei Chau island is approved for construction of as much as 762,091 square feet of housing. The island is connected to the south side of Hong Kong island by a bridge, and the area has seen rising interest from property developers since the opening of subway service through the South Island MTR line in December.
The oceanfront location of the site, which was formerly used as a driving school, makes it particularly appealing to developers desperate for luxury property opportunity, as the government market curbs appear to be driving investors into high end units.
A total of 14 developers bid for the site including Hong Kong heavyweights Cheung Kong Property, New World Development, Sun Hung Kai Properties and Wheelock Properties. KWG and Logan also beat out several of their larger mainland brethren, such as Citic Pacific, China Vanke, and China Overseas Land and Investment.
Mainland Developers Win Again in Hong Bidding Wars
The purchase by KWG and Logan, both mid-sized mainland developers, again demonstrates the growing role of Chinese developers from outside of Hong Kong in the city’s property markets. Mainland home builders have bid for land more aggressively than many of their local counterparts in the past two years, with Chinese companies winning 29 percent of the land parcels auctioned in the city in 2015 and 2016, according to data from local brokerage Midland Realty.
The increased competition for sites has led to a number of brain-melting land acquisitions over the past year including two record-setting acquisitions by China’s HNA group in the last four months. The parent company of China’s Hainan Airlines agreed in December to pay HK$5.4 billion ($697 million) to acquire an 8,803 square metre residential site in Hong Kong’s Kai Tak area, breaking its own record for the Kowloon district which it had set just one month earlier.
Housing prices have also set new heights recently, with an index of existing homes reaching a new record high earlier this month in the wake of the new stamp duty. The price of buying a roof over your head in the city was recognised as the least affordable in the world during January, and Hong Kong’s government has reacted to the rising inaffordability by increasing the supply of land being made available for residential development in fiscal 2017 by 60 percent over the supply of sites for new homes put up for sale in the 2016 fiscal year.