Land windfall slips on weak sentiment

Technology | Sunny Tse 10 Jan 2019

Weak market sentiment and reduced capital inflows from China have adversely affected prices for development sites and reduced government land sales revenue by 12 percent in the current financial year.

The government last year offered development sites that were generally attractive and priced competitively but adverse market conditions prompted the withdrawal of two prime sites, dragging down sales revenue for the year.

Revenue from the sale of 18 plots of land last year amounted to HK$11.31 billion. Land plots that were sold were earmarked for a variety of uses, including residential, logistics, data center and industrial.

Land Registry data showed the number of sales and purchase agreements involving residential units has fallen for six consecutive months from 6,713 units in June to 2,060 last month.

Land sales revenue in the first half last year was robust, boosted by the tenders of two residential sites for more than HK$10 billion each.

Wharf Holdings (0004) won the tender for the residential plot at the junction of Lung Cheung Road and Lion Rock Tunnel Road in Kowloon Tong for HK$25.16 billion last January. Sun Hung Kai Properties (0016) snapped up a residential site in Kai Tak in Kowloon for HK$25.1 billion in May.

Market sentiment in the second half was not as good as in the first half. In October, the government withdrew its offer of a prime residential site at Mansfield Road at the Peak, citing the failure of interested buyers to meet its reserve price.

Thomas Lam Ho-man, executive director and head of valuation and advisory at property consultancy firm Knight Frank Hong Kong, said the property market is under pressure from several factors, including rising interest rates, increased supply of flats and the government's imposition of a tax on vacant but unsold completed flats. As a result, developers have become more selective and cautious in their purchase of development sites.

KK Chiu, international director, vice president for Greater China and head of valuation and advisory services for Asia Pacific at real estate services firm Cushman & Wakefield, has estimated that about 6,840 flats could be produced from the land plots that the government sold last year.

The number is about 1,000 more than the Development Bureau's estimate in March of flats that could be produced for the 2017-2018 financial year.

Meanwhile, mainland developers are getting less active in bidding for plots in government tenders. The extent of their participation is said to have sunk from 90 percent in 2017 to 73 percent last year.

Of the 11 residential sites that the government offered via tenders last year, only three drew interest from mainland developers, namely Poly Property, Goldin Financial and China Overseas Land (0688). Local developers acquired most of the sites.

While some mainland developers remain active in the hunt for development sites, their rate of success in government tenders has fallen drastically to just 27 percent from 70 percent, according to JLL, a global real estate services firm.

Cathie Chung, senior director for research at JLL, said mainland developers are likely to remain selective and conservative in the short term in their bidding in government tenders. Their participation may be curtailed further in the event of further restrictions on capital outflows from the mainland.

Chung expects local home prices to decline by up to 15 percent this year, and to remain soft thereafter.

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