A government tender for a residential site on Hong Kong Island is set to close this Friday, giving developers an opportunity to build a housing project worth up to HK$1.1 billion ($140.1 million) in the Mid-Levels West area above Sheung Wan.
Upon tender closing, the site known as Inland Lot No. 8872 is expected to bring in bids within the HK$580 million to HK$950 million range, said Alex Leung, senior director at CHFT Advisory and Appraisal.
The winning bidder will be entitled to build up to 42,978 square feet (3,992.8 square metres) of new homes on the site on Hospital Road, according to a tender announced in June, with the site’s location within a 10-minute walk up a black diamond-esque incline from the Sai Ying Pun MTR station putting it in an area favoured by the city’s young professionals.
The plot is one of just two residential projects being offered by the government on Hong Kong Island in the first half of this year. The other tender, which closed last month, was for a site in Wan Chai, east of the city’s Central business district, with Swire Properties having acquired the property with a HK$1.96 billion tender.
At around 5,372 square feet, the Hospital Road site is one of the smallest plots offered through the government land sale programme in recent years, said Vincent Cheung, managing director at Vincorn Consulting and Appraisal.
While limiting the size of the finished building, the petiteness of the project, along with a scarcity of similar sites in the area, may help to attract more offers, according to KB Wong, executive director and head of valuation and advisory services at Cushman & Wakefield. The scale of the site makes the development risk, as well as the capital cost involved, more “manageable”, Wong noted, which provides an opportunity for small to medium-sized developers to expand their footprint in Hong Kong Island.
The project on Hospital Road is restricted to residential use with the developer required to build flats of no less than 280 square feet of saleable area each, according to tender documents from the Lands Department.
Leung noted that this would translate into around 100 new homes upon completion, which he estimates would sell for around HK$10 million each. Cheung of Vincorn predicted new homes would sell for from HK$36,000 to HK$38,000 per square foot.
Among the challenges facing the winning bidder are requirements for preservation of a stone retaining wall facing Hospital Road along with trees which have grown atop the aging structure, according to the tender documents. However, this hurdle is not expected to be a major deterrent.
“Even though there are physical restrictions on the development, we anticipate that the developers are still eager to bid for the site as the total investment sum is not significant, compared to other government sites,” said Cheung.
Hospital Road Housing
Currently, there are no new developments in the immediate vicinity of the site, said Wong, who noted that units at Centre Place, a 16-year-old residential building just next door to the Hospital Road property, are selling for around HK$23,000 per square foot.
New homes in Mid-Levels West sell for an average of around HK$30,000 per square foot of saleable area, said Leung. Hospital Road also connects to the city’s Sai Ying Pun neighbourhood, where home prices fall in the same price level, he added.
Within three minutes’ walk of the Hospital Road site is an existing rental apartment complex by Warburg Pincus-backed Weave Living, which was completed in August of last year. Asking rents for homes at Weave Residences – Mid-Levels currently run from HK$19,890 to HK$34,920 per square foot per month, according to public listings on the property website.
A developer taking on the site Hospital Road site will be venturing into a market where home prices have declined 3.1 percent from their historical peak in September of last year, according to a recent report from Cushman & Wakefield. With rising interest rates rapidly cooling Hong Kong’s housing market, the property consultancy expects prices to stay flat through the end of this year.