Hong Kong Property: Three Sites Sold In A Land Auction12 May, 2011, 17:00. Posted by Zarathustra
Tags: Hong Kong, Land Auction, Real Estate
The Hong Kong government just held yet another land auction, the second of this financial year. The 3 sites in question are located in Stubbs Road of Hong Kong Island, Kowloon Tong, and Yuen Long. All of them are earmarked for relatively low-density residential units, which will most certainly be marketed as high-end residential housing.
Because two of these sites are relatively small (Kowloon Tong and Yuen Long ones), medium-sized developers are showing some keen interests. Yet all of the sites were eventually sold to some of the most capitalised and largest players, and one of them was an unlikely candidate.
The Stubbs Road site was sold to Sun Hung Kai Properties (16.HK) for HK$4.49 billion, implying an accommodation value of HK$24,891 per square good (GFA of 180,383 sq. ft., un-inflated), which was close to the high-end of market expectation. The site is located in the traditional high-end residential area, thus the good price is not surprising.
The Yuen Long site was sold to Cheung Kong (1.HK) for HK$662 million, implying an accommodation value of HK$6,548 per square food (GFA of 101,098 sq. ft., un-inflated), also close to the high-end of market expectation.
The Kowloon Tong site was sold to China Overseas Land Investment (688.HK) for HK$579 million, implying an accommodation value of HK$15,741 per square foot (GFA of 36,781 sq. ft., un-inflated), which was, again, close to the high-end of market expectation.
There are surprising and unsurprising elements in this land auction. The unsurprising thing is that because these sites are relatively small, we did see some keen interests from smaller players. The surprising thing, then, is that all sites ended up in the biggest players’ hands. The most surprising, however, is that China Overseas Land was so keen on the Kowloon Tong site. China Overseas Land is mostly known for being one of the major Chinese real estate developers, not a Hong Kong property developer. They have landbank in Hong Kong, and they did have other projects in Kowloon Tong, but the exposure is very small. The last time they were active in Hong Kong would be before the crash in 1997.
Just like the Ko Shan Road site being sold last month, land sales for smaller sites are usually less of a major market pointer. As these developers are all large and well-capitalised, these acquisitions are small relative to their balance sheets, thus they are well able to finance the acquisitions.
Perhaps they are still somewhat confident on the real estate market in Hong Kong, yet recent indicators have shown markedly weakening of the market. Transaction volumes have dropped sharply, and major developers, including Cheung Kong, Sun Hung Kai Properties and Henderson Land (12.HK) are selling their residential units at reduced prices. There are also signs of capital outflow, explaining the higher interest rates banks now charge to home buyers.