COLI Wins Plot on HK’s Former Kai Tak Runway for Bargain HK$8B

China Overseas Land & Investment (COLI) picked up Hong Kong’s final residential plot of the year for a bargain HK$8.03 billion ($1.03 billion), as clouds gather over Asia’s most expensive real estate market.

The state-run mainland developer purchased the site on what was once the runway of the city’s long-closed Kai Tak airport for the equivalent of HK$13,523 per square foot of built area (HK$145,560 per square metre), which is 12.7 percent less than was paid for an adjoining plot last month, and nearly a quarter less than what Hong Kong’s biggest residential developer provided in return for a nearby plot during May.

COLI’s year-end bargain comes as a set of four sites sold at the former Kai Tak airport site this year have brought consecutively lower prices in what many analysts predict is a harbinger of an unsteady 2019 for a Hong Kong property market which slid during the fourth quarter.

Kai Tak Property Loses Value in 2018

With its purchase of the 50-year land grant for Kai Tak Area 4B Site 2, COLI will now take possession of a 97,393 square foot (9,048 square metre) site approved for construction of up to 594,087 square feet of housing by gross floor area. Analysts expect the homes to be built on the site will eventually sell for between HK$25,000 and HK$28,000 per square foot, adding to the developer’s nearby One Kai Tak project, both phases of which were completed last year after COLI had purchased the sites in 2012.

The Hong Kong-listed enterprise shouldered aside competing solo bids from local developers Chinachem, CK Asset and Sun Hung Kai Properties to win its harbourfront parcel. The site also attracted joint bids by K Wah International with Sino Land, Wheelock Properties along with New World and Henderson Land together with Empire Development (a developer formerly run by the late Walter Kwok) to win the plot in Kowloon East.

With a plot ratio of 6:1, China Overseas’ latest acquisition was purchased for the equivalent of HK$13,523 per square foot, or 12.7 percent lower than Pan Sutong’s Goldin Group paid for an adjoining parcel in mid-November and seven percent lower than a consortium of Henderson Land, New World Development, Wheelock & Company and Empire Group paid for a neighbouring Kai Tak site in early November.

The site is the fourth to be sold on the former runway in 2018 after Sun Hung Kai Properties won the tender for Kai Tak Area IF Site 1 for HK$25.16 billion ($3.2 billion) in mid-May. That sale, which carried a price tag of HK$17,776 per square foot of built area, set a record for the largest sum ever paid at a government land sale in one of the world’s most expensive real estate markets.

Low Price Site Marks Market Slide

With earlier predictions estimating this latest Kai Tak site’s selling point at HK$15,500 per square foot, the final transaction price for this latest plot is a “bit disappointing”, James Cheung, executive director of Centaline Surveyors said in an interview in the South China Morning Post. Cheng saw the results of the site tender as evidence that the city’s housing market has cooled further since August, as developers become more cautious in the face of a softening market.

Other analysts attributed the missed market expectations to the site’s lack of a full sea view or a retail component, in addition to market pessimism.

When Sun Hung Kai won the tender for Kai Tak Area IF Site 1 in May, that tender came in the wake of 24 straight months of rising private home prices in the city.

However, in July Hong Kong’s chief executive Carrie Lam had introduced a vacancy tax to force developers to add to the city’s housing supply, while banks began raising mortgage rates for the first time in 12 years.

In August, home prices in the city began dropping and now a home price index compiled by Centaline Property Agency, has fallen 6.4 percent over a 12 weeks period which ended December 16th, the longest losing streak since November 2008.

More Kai Tak Site Sales Scheduled

Despite this slide in land values in the Kowloon East neighbourhood a commercial site is scheduled to be available for tender in the coming quarter, according to a schedule published by Hong Kong’s Lands Department, with the capacity to add 863,000 square feet of hotel space — enough for 480 to 800 guest rooms.

Also during the first quarter of 2019, another site on the former airport runway — Kai Tak 4C Site 2 — is expected to fetch HK$12.83 billion ($1.64 billion), or HK$20,000 per square foot, according to Midland Surveyors. The site is expected to be the most expensive among the four residential plots scheduled for release in the first three months of the year.