Wing Tai Properties Limited and China Vanke on Tuesday won a tender for a residential site in Hong Kong’s Sha Tin district with a bid of HK$786.4 million (US$100 million), exceeding analyst predictions despite the city’s biggest housing downturn in decades.
Wing Tai and Vanke Overseas Investment Holding Company Limited, the Hong Kong-listed arm of China Vanke, offered the equivalent of HK$8,802 per square foot of gross floor area for the project, which Wing Tai said it intends to use “purely for residential development.” The 14,890 square foot site can yield up to 89,339 square feet of floor space.
Champion Estate (HK) Limited, a Wing Tai subsidiary, outbid a crowded field of 16 other contenders including CK Asset Holdings Limited, Far East Consortium, CITIC Pacific Limited and China Overseas Land & Investment in the tender for the 50-year land grant, according to a statement by Hong Kong’s Land Department Tuesday.
With Hong Kong home sales having slid 4.5 percent during the first seven months of this year, the winning price of HK$786.4 million exceeded expectations of up to HK$710 million for the New Territories project, according to experts who spoke with Mingtiandi.
Sha Tin Surprise
“This is a very surprising outcome given the difficulties in the market,” Hannah Jeong, head of valuation and advisory services at Colliers Hong Kong, told Mingtiandi.
“I have checked with the winning developer on this, they are very confident in the market that it will bounce back in the next three to four years, including the stabilisation of the financing market…However the majority of the developers were less confident and took rather a conservative approach,” she said.
Prior to the sale, expectations for the tender had ranged from HK$570 million to HK$710 million, according to an account in the Hong Kong Economic Times. Wing Tai and Vanke will each own 50 percent of the project, according to the media account.
The transaction came as Cushman & Wakefield forecasts that residential transactions in Hong Kong for 2022 will decline 35 percent from a year earlier, as home buyers have turned cautious amid Covid-19 curbs, global economic instability, and interest rate hikes.
“The land sale indicates that the developers are still keen on acquiring residential sites, despite market uncertainties due to Covid and interest rate hikes,” Cyrus Fong, senior director of valuation & advisory at Knight Frank, told Mingtiandi.
Colliers’ Jeong expects that Hong Kong’s mass residential market will record a 10 percent drop in sales volume this year due to the economic downturn and rising interest rates. “The current interest rate is already higher than the yield the properties can generate, which will limit investment activities for the remaining 2022. However, end-user buyers will continue to look for good bargaining deals,” she noted.
Wing Tai, however, remains optimistic on the market.
“We believe the Hong Kong property market will continue with its stable development momentum, and the group will continue to expand its land reserve through various channels for long-term development considerations,” said Wing Tai Properties managing director Kenneth Ng Kar Wai in a statement.
Inquiries to Vanke Overseas had not received a reply by the time of publication.
Known as Lot No. 643, the site is located at Hin Wo Lane in Sha Tin in the New Territories region, within around eight minute’s walk of the Hin Keng MTR station.
Analysts expect it to benefit from the extension of the MTR Tuen Ma Line which shortens the commuting time from Sha Tin to CBD areas.
Chow Ming Hei, executive director and deputy general manager of Vanke Holdings (Hong Kong) Company Limited, told local media the site will likely be developed for small and medium-sized residential units in order to meet market demand.
The project is “in a superior location” adjacent to subway and bus stations as well as an MTR mall that will be opened soon, said Wing Tai’s Ng in a statement. “The development of the area has attracted young couples that look for high-quality residence,” Ng added.
However, the site has limited street frontage, which may have limited its appeal to some bidders, Jeong told Mingtiandi.
“The construction costs increased due to inflation and this site will be difficult to add retail spaces on the lower floors due to limited site frontage offering despite it is a R(A) zone,” she said.
A Residential (Group A) zone is intended primarily for high-density residential developments with commercial uses permitted on the lowest three floors of a building.
Data from Cushman & Wakefield showed that home prices dropped more significantly for the lower- and mid-price market compared with the luxury segment as less wealthy owners were hit harder by the economic downturn.
While overall residential prices in Hong Kong declined by 4.5 percent in the first seven months, during the third quarter, prices at City One Shatin, a proxy for more affordable projects, have dropped 7.1 percent from second quarter levels, according to data from Cushman & Wakefield.
China Vanke, which counts state-owned Shenzhen Metro Group as its largest shareholder, has remained relatively stable amid China’s property crisis.
The developer’s IPO of its property services unit this week raised $783 million, and the company’s August contracted sales were down just 16.4 percent compared to a year earlier.
The developer ranked tenth by land acquisition spending in China in the first eight months of the year, buying up RMB 20.8 billion in sites, according to data from China Index Academy.
The company has also been expanding its footprint in Hong Kong.
In August 2019, China Vanke acquired a HK$580 million ($74 million) site in Hong Kong’s North Point neighborhood that is earmarked for a commercial or mixed-use development.
In July 2020, China Vanke teamed up with Qingdao-based CNQC International to snatch up a residential plot at Ma Wo Road in the New Territories for HK$3.7 billion ($477 million).
Wing Tai has been actively investing in residential projects across Asia over the past few years.
Last June, Wing Tai won the tender for the Kwu Tung residential site in Fanling, New Territories for HK$2.6 billion, or HK$9,208 per square feet.
In May, the Singapore arm of Wing Tai acquired a lakefront residential complex in Singapore’s Jurong East area for $199 million.