The economic and business environment has been hit hard by violent demonstrations and the epidemic.
The government is about to announce the land sales plan for next quarter. The market expects five land sites, including two residential sites and three commercial sites, to be launched in the next quarter. Among them, the land site for luxury mansions at Mansfield Road on the Peak and the new commercial king land in New Central Harbourfront are the most remarkable. However, there have been violent demonstrations and the epidemic. Some surveyors reduced the valuations of these five sites from about HKD125.57 billion in February this year when the annual land sale plan was announced to about HKD80.85 billion; that is, it has fallen by 35.6% or HKD44.72 billion in 4 months. The surveying industry also believes that the failure risk of land selling bid in the next quarter is exceptionally high, especially for three commercial sites. The main reason is that developers' bids are expected to be very conservative under the worsening business environment.
Journalist Ngan LunLok
When the government announced its annual land sale plan in February this year, there were still five sites in the first half-year plan not being launched. Two residential lands are located in Sai Kung, and the Peak, respectively, and the three commercial sites are distributed in Central, Kai Tak, and Tung Chung. The valuation of the new commercial king land in New Central Harbourfront among the five is the highest, with market estimation up to HKD55.28-75.55 billion. The valuation of the luxury mansion on Mansfield Road on the Peak is as high as HKD16.17-19.33 billion.
Developers are conservative on bid. The risk of failure of bid is high.
However, in the past four months, Hong Kong has turned upside down, first was the come-back of the violent black demonstrations, and then the hitting of the COV-19 epidemic to the world. The normal economic activities of Hong Kong almost stopped, and the economy has deteriorated rapidly, pushing the unemployment rate to a 15-year new high of 5.9%. The property price was still high at the beginning of this year. But the land prices which reflect a property market outlook of three to four years had come across situations like abandoned transaction and failure of bid since the second half of last year. The surveying industry is not optimistic about land sales in the next quarter. In response to Hong Kong Wen Wai Po's inquiry, Pu Jin Group re-evaluated the five sites. The latest valuation is HKD80.85 billion, a significant reduction of 35.6% from HKD125.57 billion in February when the new fiscal year land sales plan was announced. In other words, the valuation has fallen by HKD44.72 billion in four months.
The Executive Director and Director of Corporate Development of Pu Jin Group, Cheong Shing-Dium, frankly says that the launches of luxury project land and commercial land site in Central under current worsening economic environment are inadvisable. Because the transaction price would be lower much than that in a better market. At the same time, developers face a very high risk due to the high land. It is estimated that developers' bids would be conservative, resulting in a significant price drop between developers' bids and the government's base price. The risk of failure of bid is expected to be quite high.
Cheong Shing-Dium points out that the developer's land development is a long-term investment; thus, they would be more cautious about risk assessment. The transaction land prices have been generally at a low level this year due to the uncertain economic prospects in Hong Kong. And there has even been failure of bids for commercial lands, reflecting that developers are conservative about future economic performance and increase the risk assessment.
The valuation of Commercial Land in Central fell by 40% in three years.
The Managing Director of Wang Leung Consulting and Evaluation, Cheong Kiu-chor, also points out that the commercial land prices in Kai Tak were pessimistic last year. There have been abandoned transactions and failure of bids. Even the West Kowloon commercial king land, which was sold at a seemingly high HKD42.2 billion price, was actually at a lower price than market expectations. He believes that the business environment in Hong Kong this year would be worse than last year, and the retail industry and hotel industry would enter a cold winter period. It is expected that more commercial land sites would be sold at low prices or failure of bid this year.
He said: " The Murray Road Car Park Redevelopment Project was sold in 2017 at an sq ft price of HKD50,000 (floor area price). The price of New Central Harbourfront Commercial Land would gain a higher price at that time, with HKD 60,000-70,000. However, currently, office rents in Hong Kong Central District have decreased, the vacancy rate has risen above 5%, and there is a Two-envelope system in the sale under a not ideal business atmosphere. So, we lowered the valuation to HKD35,000-40,000, due to the project's high investment amount and long investment time." In other words, the current Cheong's valuation has reduced by 40% compared to three years ago.
Mansfield Road land prices have fallen by HKD17 billion in one year.
The most significant downward of valuation in the next quarter would be for the residential land site in Mansfield Road, the Peak. The bid for this land in October 2018 had failed. The market valuation was as high as HKD24.2-36.4 billion, and the sq ft floor area land price was as high as HKD60,000-90,000. However, the market valuation has been dramatically reduced to HKD16.17-19.33 billion due to the impact of the amendment crisis last year and the epidemic this year, and the sq ft floor area land price has fallen to HKD40,000-47,800. In total, over the past year, the valuation of the land price in the Peak has dropped by 33-47%, which is a decrease of about HKD8-17 billion. The industry also estimates that the government would not sell it at a bargain because the land is quite precious. So, it also faces an extremely high risk of failure of bid.
