Elusive common ground in pricing

The land sale program this financial year has suffered from unexpected setbacks due to property developers showing a level of prudence rarely seen in recent years.

While interest rate hikes and a buildup in inventory are blamed for the caution, the sale of fewer sites has also led to a direct impact on government revenues.

Rather than the HK$120 billion initially forecast by Financial Secretary Paul Chan Mo-po, the final figure from land sales is set to be 40 percent less by the end of March.

Unless the market environment improves dramatically in the coming financial year, factors making developers so prudent these days would continue to hang over them, regardless of the positive note that Chan has tried to brush up with his budget speech and public remarks.

In respect of the financial year of 2022-23, the government had planned to sell 17 plots of land via the annual land sale program but has been able to sell 12 so far.

Since the government rejected tenders for a residential site in Tuen Mun in April last year, a few more planned sales have fallen flat due to developers failing to offer bids high enough to meet the government's reserve prices.

Eyebrows were raised in January and February after several major sales were withdrawn.

Last month, a prime site in Stanley for luxury residential development was taken back from sale after all tenders came short of expectation. Then last month the Urban Renewal Authority and MTR rejected tenders for a major redevelopment project in Kwun Tong and a residential development in northern Lantau.

Had those land sale attempts been successful as originally forecast in the 2022-23 budget, Chan would have been able to narrow the deficit gap.

The government explained it "won't sell land cheaply."

Is whether something's cheap or not a concept of relativity? Obviously, whey they removed the Stanley site from the market, officials were not yet ready for the shock that they would discover in the various tender documents.

Home prices have fallen almost 16 percent but the shock may have turned out to be bigger than that number. Buyers and sellers think on different wavelengths.

When property developers prepare their tender documents, they consider not only the trend up to the moment but also how interest rates may change and affect the cost of borrowings, as well as what the property market may be like when developments are ready for sale several years later.

So, how will interest rates change this year and next year?

The reopening of the border is a positive factor but it will take some time to monitor the effect. As of now, it is still uncertain.

Unless the movement of interest rates reverses to ease quickly with greater market certainty, it is questionable that developers will wish to bid as aggressively as before.

Is the government prepared to show greater flexibility when reviewing tenders? If it isn't, it is probable that what has happened this financial year will recur in the coming fiinancial year.