Chinachem Group Buys $1.63B Kowloon Condo Site in Hong Kong

Hong Kong-listed real estate developer Chinachem Group was announced on Monday as the winner of a public tender for a residential site in the Ho Man Tin area of Kowloon East estimated to be worth nearly HK$13 billion ($1.66 billion).

The developer’s winning bid for the 639,382 square foot (59,400 square metre) site in the residential neighbourhood just east of Mongkok, is estimated to have brought the MTR Corporation around HK$12.8 billion ($1.63 billion). Apart from paying the MTR for the land, Chinachem will also be required to share with the rail operator 25 percent of its profit from sale of homes in the project.

The Hong Kong-listed operator of the city’s light rail network is believed to have seen the winning bid for the plot at the southwest corner of the Ho Man Tin MTR station slip by as much as 10 percent, according to estimates from local surveyors, due to Hong Kong’s slumping housing market. The MTR also reduced its cut of home sale profits for the project, after selling an earlier phase of the same project to Goldin Financial in 2016, with a requirement to share 35 percent of profits.

In the wake of rising mortgage rates and a vacancy tax imposed by the government in August, Hong Kong’s average home prices declined in September for the first time in 29 months, and the city’s two most recent land auctions had led to one cancellation of a sale on Victoria Peak and below  par turn-out for a plot in the New Territories.

MTR Site Brings in Seven Bids

Donald Choi, the CEO of Chinachem Group, said in an interview after the company won the residential site in East Kowloon that the land will be developed into 900 middle-sized apartments with two to three bedrooms. “The latest acquisition is our first site in the up-and-coming luxury residential area of Ho Man Tin,” said Choi, who expressed confidence in the future of Hong Kong’s real estate market.

As the total GFA allowed for 639,300 square feet, Choi’s company would be paying a unit price estimated of HK$11,700 per square foot for the project in Ho Man Tin, if the project was purchased at the valuation rate of HK$12.8 billion. Homes in the up and coming area currently sell for an average of HK$30,000 per square foot, according to local property listings.

According to the MTR Corp, Chinachem’s new site also attracted six other bids in total, with four developers making solo offers including Sun Hung Kai Properties, Henderson Land Development, CK Asset Holdings and Kerry Properties. The Ho Man Tin site also attracted bid from a joint venture between China Overseas Land and Sino Land, as well as a second joint offer from a cooperative effort between New World Development, Wheelock Properties and an unnamed third company.

Chinachem Rides an MTR Land Sale for Third Time

This latest purchase is Chinachem Group’s third acquisition of an MTR project, after the developer bought a site next to the rail operator’s Tsuen Wan West station in 2012 and a second plot, next to the Long Ping station land in Yuen Long, in 2013. Those two plots have already developed into residential projects which commenced sales of homes in 2017 and early 2018 respectively.

Thomas Lam, executive director at Knight Frank, estimated that Chinachem could complete construction of its new homes in Ho Man Tin by 2024, with finished homes selling for an average of HK$33,000 per square foot.

According to the veteran consultant, the recent reduction in valuation doesn’t necessarily reflect a change in the property market. “Developers need to consider various factors to assess the land price or tender price such as finance cost, holding cost, proposed sales price, flat mix, project positioning, construction cost and development period,” said Lam, who said the new valuation reflect all the factors and is a fair price for the land.

Cancelled Peak Sale Shows Slip in Land Demand

Hong Kong’s real estate market has shown signs of softening in the last month after a land sale of a plot in the city’s most expensive area, Victoria Peak, which had been expected to bring in around $4.1 billion for the city was cancelled by the government.

Despite the site being the sole plot to be made available in the exclusive enclave since 2011, the Lands Department cancelled the sale after “the tendered premiums did not meet the Government’s reserve price for the site”.

Besides the Peak site, a small parcel in Hong Kong’s suburban area of Fuk Hang Tsuen in Tuen Mun only received three bids by the time that a government tender was closed on Friday last week.

Home Prices Soften Since August

Property price indices published by Hong Kong’s Rating and Valuation Department for August 2018 indicated that prices of used homes dropped by 0.076 percent last month, compared to August. The drop in the property gauge marked the first time since the beginning of 2016 that Hong Kong’s home prices had declined after 29 consecutive months of gains.

According to market forecasts by S&P Global Ratings, home prices in Hong Kong are expected to decline by five to 10 percent in the next 12 months, mainly driven by uncertainties such as the Sino-US trade war, devaluation of the RMB, rising mortgage rates, and the recent vacancy tax imposed by the government.