Hong Kong-listed Far East Consortium this past week bested eight competing bids to purchase a residential site in the city’s Sai Ying Pun area for HK$1.24 billion ($157.9 million) through a Urban Renewal Authority tender.
“The acquisition will provide the group with an opportunity to have a foothold in Sai Ying Pun district which is an area undergoing regeneration and is evolving into a vibrant community with a mixture of residential and commercial surroundings,” FEC said in a filing with the Hong Kong stock exchange.
“(It) will also allow the group to continue diversifying its property development portfolio as well as add to the residential and commercial development pipeline,” the developer said in the same announcement.
The winning bid was lower than analyst expectations, which were in the range of HK$1.38 billion to HK$1.45 billion, despite the site being just two MTR stops west of the city’s primary business district in Central.
Residential With Retail
Having topped tenders from Hong Kong heavyweights like Sun Hung Kai Properties, Far East Consortium is set to develop a 94,766 square foot (8,804 square metre) project with 4,305 square feet designated for retail use, according to an announcement by the URA.
Analysts have estimated the value of the project, which covers the addresses from 1 to 7 Sung Hing Lane, 12 to 16 Kwai Heung Street and 216 to 218 Des Voeux Road West, to reach as much as HK$2.4 billion upon completion.
FEC’s winning bid values the site at HK$13,084 per square foot of maximum permissible floor area, which translates to a unit price which is still about 10 percent below the low end of analyst expectations. The discounted bidding was likely due to ongoing interest rate hikes, which have made developers more cautious, said Alex Leung, senior director at CHFT Advisory and Appraisal.
Other reasons for the lukewarm tender response include declining sales of both new and second-hand homes in Hong Kong during recent weeks, as well as the evaporation of competition from mainland developers. At the same time, local developers have also become less daring in their bidding, Leung said.
“Under the current economic environment, developers appear to be more conservative than before,” said Leung, who noted that this land tender is not the first to indicate changing developer attitudes towards acquiring residential land in Hong Kong.
In April, a tender for a residential site known as Tuen Mun Town Lot No. 561 on Castle Peak Road was cancelled, as none of the bids reached the reserve price set by the government.
A month before that tender was withdrawn, CK Asset won a site covering four residential plots in To Kwa Wan through a URA tender for HK$5.99 billion, which also fell short of analyst expectations of HK$6 billion to HK$6.9 billion for the site.
An exception to these low bids was the June tender of a site on Queen’s Road East site in Wan Chai, which Swire Properties acquired for HK$1.96 billion. The developer’s bid in that government tender landed at the higher end of market expectations, which ranged from HK$1.39 billion to HK$2.2 billion.
Land Bank Expansion
FEC is taking on its latest Hong Kong Island housing project despite residential transaction volumes having been predicted to drop up to 25 percent in 2022 compared to the year before, according to a recent report from Cushman & Wakefield.
The Sai Ying Pun acquisition comes after the developer last November partnered with New World Development to acquire a residential project on the former Kai Tak runway from cash-pressed Kaisa Group Holdings in a deal that valued the property at HK$7.9 billion.
Two weeks after that deal, FEC agreed to sell the commercial portion of a project on the disused runway to utility operator China Light and Power for a consideration of HK$3.38 billion.
Also within the last year, FEC replenished its land bank with acquisitions of a pair of residential sites in the New Territories’ Tuen Mun and Sai Kung areas, with the two sites holding a combined gross development value of HK$4.67 billion, according to the group’s latest annual report.
FEC holds full ownership of the housing site in Tuen Mun, while owning about 33.3 percent of the Sai Kung site, with its joint venture partner remaining unnamed.