Analysts are already predicting a quick rebound in Hong Kong’s property market, but the city’s developers may still need a bit more convincing, judging by the failed sale of a prime commercial site this week.
The Hong Kong government on Wednesday announced the cancellation of a tender of the first commercial plot to be made available at the city’s former Kai Tak airport because “the tendered premiums did not meet the Government’s reserve price for the site.”
The city authorities, who rely on land sale premiums for nearly 27 percent of public revenues, are believed to have been expecting from HK$7.96 billion ($1.01 billion) to HK$9.49 billion for the 9,480 square meter (102,041 square foot) site, which drew nine bids by the tender closed on January 25th.
Runway Plot Fails to Gain Altitude
The 9,480 square meter Kai Tak Area 4C Site 5, designated for non-industrial purposes, was valued at between HK$7.96 billion and HK$9.49 billion, according to property consultancies Knight Frank and Colliers International. The land parcel can be developed into a hotel and an office complex totaling a gross floor area of 56,880 square meters (612,256 square feet), which works out to a value of HK$13,000 to HK$15,500 per square foot.
The unconsummated plot is located on the runway of the former airport and close to a 10,956 square metre residential parcel which was purchased by Sun Hung Kai Properties for HK$11.26 billion only a week ago — a deal which was deemed to be in line with market expectations.
Nine bids were received for the tender, including entries by Sun Hung Kai Properties, CK Asset Holdings, Great Eagle Holdings, Astute Max, K&K Property, Sino Land, K Wah International, Wharf Real Estate Investment Company and the Far East Consortium.
Mixed-Signals in the Hong Kong Market
The failed land sale is the latest data point for investors seeking to divine the prospects of Asia’s most valuable real estate market.
The news of the cancelled land sale in Kai Tak came right before the Hong Kong Rating and Valuation Department released its latest home price index which showed the prices of the city’s homes fell by 2.4 percent in December, wiping out virtually all the year’s gains.
However, just last week, investment bank CLSA sounded a suddenly positive chord in a note to investors regarding the city’s residential sector. “Market dynamics have shifted,” analyst Nicole Wong said, adding that, ” Secondary transaction volume has returned to two-year average, and more transactions are made above bank valuation. We believe prices are about to trough and rebound by up to 15%.”
Second Failed Land Sale in Four Months
In October last year, the Hong Kong government cancelled a land sale for the first time since January 2016, as it withdrew a HK$32.3 billion ($4.1 billion) luxury site near Victoria Peak due to unmet tendered premiums.
Alongside these rejected tenders, there are other signals that the Hong Kong real estate market has been heading down since July last year.
The home price index released by the city’s Rating and Valuation Department indicated the prices of Hong Kong homes fell by 2.4 percent in December, representing a 9.2 percent slip since their peak in July 2018.
Still, CLSA seems to remain confident, at least in the residential market, where it predicts that prices will rise by up to 15 percent from April to December. “Our forecast is nothing dramatic,” the bank noted. “Prices by the end of 2019 will still be two percent below peak in the best-case scenario.”