Violent accidents damage the business prospects; Tender for the project on top of high-speed rail station is sluggish.
Hong Kong Wen Wei Po (By Ngan LunLok)
The deterioration of the Sino-US trade war and the escalating violent demonstrations in Hong Kong have caused a huge impact on the property market in Hong Kong, and the land price has been degraded. The Government will launch a tender for the commercial big land site on top of the West Kowloon High Speed Rail Station since next Friday, and the buildable floor area is 3,164,600 sq ft, which is the largest among single tender real estate projects ever. However, facing the current social environment, many surveyors have significantly lowered the valuation of the site, which had been valued at more than HKD100 billion over two months ago, while it was largely cut by 20-40% to the latest valuation of HKD31.6-88.6 billion, a very large valuation differences, and it is expected that the project may have risk of failure of bid.
The property market in Hong Kong is facing internal and external problems, but the Government launching land is unimpeded. The Lands Department announced yesterday to put on sale the border land which is the project on top of West Kowloon High Speed Rail Station in Lin Cheung Road and Austin Road West of Kowloon by open tendering, and the tender will start on September 20 and close on November 22. Industry insider points out that, the bidding time for this project is longer than usual, mainly because of the larger scale, and it is believed the government wants to give developers more time to prepare.
Financing is difficult and there is risk of failure of bid.
The Managing Director of Wang Leung Consulting And Appralsal Limited, Cheong KiuChor expresses, the recent social and property market sentiment are not good, and the bidding price for Kai Tak commercial land in earlier was not satisfactory, plus it is difficult for companies to raise funds, in addition the future financing cost has increased due to some rating agencies have lowered Hong Kong ratings, thus the valuation of the commercial land on top of the high-speed railway West Kowloon Station has been lowered by 40% from the predicted sq ft floor area land price of about HKD17,000 to about HKD10,000, which means the valuation is only about HKD31.6 billion. He frankly says, the project land price and construction costs amounted to tens of billions of HKD, so the financing is difficult and there is a risk of failure of bid, even if the developers bid for the land in the form of a consortium.
The largest commercial land in Hong Kong's history is put on sale.
According to the information of the department, the site area is approximately 643,106 sq ft, and the highest buildable area is approximately 3,164,600 sq ft, which is the largest among commercial projects being put on sale in a single ever. The market has great differences on the valuation of the land, due to the huge scale and the recent deterioration of the market sentiment. Synthesizing market information, the land valuation ranges from about HKD31.6 billion to HKD88.6 billion, leading the sq ft floor area land price to HKD10,000-28,000. Surveyor estimates, since the project scale is too large, the future valuation is likely to change due to the floor ratio of retail and office area also the related supporting facility specified in the land lease.
Among 3 commercial sites being put on sale this year, 1 was failure of bid and 1 run into forfeiture of deposit.
It is worth noting that since the beginning of this year, the Government has launched three commercial sites, while only one was sold, with the other two were failure of bid and run into forfeiture of deposit. The only sold commercial site is Kai Tak Sports Park commercial/hotel land site, which was won by The Far East for about HKD2.446 billion on August 13 this year, with the floor area sq ft land price at about HKD7,100 base on the buildable floor area in about 344,400 sq ft, 11.25% lower than the lower limit of the market expectation on that day.
In fact, the commercial land site scale this time is huge, which is the first in the history of land sales in Hong Kong, and the Secretary of Development Bureau, Woo WaiLun replied the project would not be put on sale in partial, because they want the project could be designed and managed in a unified manner. The Executive Director and Director of the Valuation and Consulting Department of the Knight Frank, Lam HoMan expresses, due to the recent market conditions and social conditions, and in the case of unknown detailed land sales terms, also assume that the project cannot be sale in partial and the existing information is followed, then the estimated sq ft floor area land price is about HKD20,000-28,000, leading the valuation to about HKD79.1-88.6 billion, down 20% from the beginning of the year.
It is estimated a small amount of consortiums will take part in due to the long recycling period.
Lam HoMan describes the land is “in case of not seeking”, and located in "strategic" location, also will be popular among large developers. It is estimated that the project will have office buildings, super Five Star hotel, retail and other commercial facilities. The long-term rental return rate is about 3% to 3.5%, and the estimated capital recovery period is about 20 to 30 years. Due to the large amount of investment, it is estimated that only 3 to 5 consortiums would enter the bidding mainly based on join form, and it is not possible to take part in by sole proprietorship, also it is believed that large Chinese-funded companies will also participate. He adds that, developers are very different from "residential land" in the estimation and bidding of "commercial land", so the pricing must be different from residential land and refer to other considerations.
He also reminds that, the land investment amount is as high as to HKD100 billion, plus the capital recovery period is long, so it is expected that there will be a certain gap between the government and developers in the "calculation" of land prices. Developers consider more such as the future cash flow and occupancy rate of the project, so it is hoped that the Government could be more "close to the market", otherwise there will be risk of failure of bid.