2024-05-17 28Hse Editor
The recent aborted bids for three sites, including the luxury residential site on Cape Road, Stanley, the commercial site at Yue Man Square, Kwun Tong and the Siu Ho Wan development, reflect developers’ conservatism and cautiousness. However, the eye-catching commercial site at Sai Yee Street, Mong Kok, which was the focus of attention, escaped abortive bidding, yet was 16 per cent below the lower end of the market.
The site, located at the junction of Sai Yee Street and Argyle Street in Mong Kok, is known as the "King of Commercial Land." With a total of three bids received, Sun Hung Kai Properties (SHKP) finally won it HK$4.729 billion. Based on the maximum permissible gross floor area of 1.52 million square feet, the land premium per square foot is only about HK$3,103, which is 16 per cent below the lower limit of the market.
The valuation of the commercial site has fallen since it was included in the land sale list. According to information available, in February last year, the valuation of the site ranged from HK$18.2 billion to HK$22.8 billion, with a floor area of about HK$12,000 to HK$15,000 per square foot; by the time of bidding in February this year, the valuation had dropped to about HK$5.64 billion to HK$10.97 billion, with a floor area of about HK$3,700 to HK$7,200 per square foot, which indicates a sharp drop of over HK$10 billion in one year.
Although the project required additional construction of a community hall and public transport interchange, which increased the construction cost, the winning bid was still lower than expected. Land sales and premiums are an important source of revenue for the government. The frequent abortive bids for land sales will definitely affect the government's revenue, and many are therefore worried that the government is selling land at cheap prices in order to generate revenue from land sales.
In response to the concerns about land being sold at dirt-cheap prices, the Development Bureau has reiterated that the valuation of land sales is carried out by professional surveyors of the Lands Department, based on the development and requirements allowed in the tender documents, and with reference to land and property transactions in the market, as well as the latest market conditions to determine a reserved price, and sites are sold only when the reserve price is met.
Why was the winning bid for this commercial site much lower than expected? Firstly, according to Financial Secretary Paul Chan Mo-po, the Government is now adopting a "follow-the-market" strategy in land sales, presumably since a number of commercial sites have been granted at low prices and the reserve price has been adjusted in response to market conditions.
In addition, the overall vacancy rate of Grade A commercial buildings in Hong Kong remains high. In a market full of uncertainties, coupled with the fact that the project cannot be dismantled and the development cost is high due to the fact that the project is not attractive, the developer's bidding is naturally relatively conservative, and there is a risk of losing the bid, but this time he succeeded in bidding for the land at a low price.
Selling land at a low price naturally aroused criticism and some people were worried that the transaction price would become an indicator in the future, thus changing the developer's pricing strategy and making selling land at a low price the new norm. Therefore, there was a view that the Government could first withdraw the site and abort the tender on the grounds that it is "below-priced", and then relaunch when market conditions improve.
Ideally, the Government could do this, but it would have an impact on treasury revenue. But from another perspective, if the land bid is aborted and the site is re-tendered, there is no guarantee that the transaction price will be higher than the current one, but may be lower.
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