It is estimated pricing is conservative due to the high risk, and the Government worries failure of the bid.
Hong Kong Wen Wei Po (By Ngan Lun-lok)
The tendering for commercial site on top of West Kowloon Station was closed yesterday, and the Lands Department announced that it had received three tenders. As the largest single-tendered real estate project in history, it can build more than 3 million sq ft and its location is superior. However, the market is pessimistic about the results of the tender due to the recent social turmoil and the Sino-US trade war white-hot, In addition, the project investment is extremely large, and the market valuation of the land is as high as HKD79.1 billion, so it is risky of failure of bid if the government is unwilling to lower the reserve price since developers bids are conservative.
The Lands Department announced yesterday that this huge commercial land site on top of West Kowloon Station had received a total of three tenders, including Cheung Kong, SHKP, and so on, and SHKP among affirmative disclosed to bid in a sole proprietorship. As for Henderson, it bid in a joint venture with Chinese Estates Holdings Limited, LIFESTYLE INT'L, Sino, and The Wharf Limited, the combination of which is rarely seen in the land sales, so it is believed that they join and share risk to compete with local leading real estates due to the high project investment.
The payback period is about 30 years.
The executive director and director of the valuation and consulting department of the Knight Frank, Lam Ho-man expressed, the number of people entering the project was similar to the expectation, with mainly of strong developers. In fact, many surveyors, including Knight Frank, have previously lowered their land valuations by 10% to 21% in response to market conditions. The current market valuation of the land is between HKD31.646 billion and HKD79.1 billion, with the sq ft floor area land price is about HKD10,000-25,000 yuan.
Lam Ho-man believes that the project has a large development scale and a long payback period, so it is estimated that the winning bidder will aim at long-term investment and rent collection, and it is predicted developers’ bids will be more conservative, with the estimated long-term rental return rate in about 3-3.5% and the fund recovery period in about 20-30 years. He is also worried that the land will face the risk of failure of the bid if the government is not willing to sell the land at a cheap price or lower the reserve price.
This year's commercial land sale business is full of twists and turns.
It is worth noting that commercial land sales this year can be described as twists and turns. After the failure of bid for No.5 commercial and hotel land site in Kai Tak District 4C, the sale of the No.4 land site in Kai Tak District 4C which had been won by Goldin for over HKD11.124 billion in May was closed after the amendment crisis in June under the reason that the recent social conflicts and economic instability may affect the market, which is a rare situation in the history of land sales. In August, the Government re-launched the site but ended up with a failure of the bid. It was extremely unusual to have two times of failure of bid for commercial land sites in a year.
During four times that Government putting on sale commercial lands in this year, only one commercial/hotel land site near Kai Tak Sports Park in Shing Kai Road, Kai Tak was sold, and it was sold to The Far East for about HKD2.446 billion in August with each floor area land price at about HKD7,100, which was 11.25% lower than the lower limit expected by the market at the time.
There may be a huge gap between the bids with government pricing.
The Managing Director of Wang Leung Consulting and Evaluation, Cheong Kiu-chor evaluates the commercial land on top of West Kowloon Station this time for only HKD31.646 billion, which is the lower limit of market valuation. He points out that many investors believe that the investment climate in Hong Kong is worse than expected, plus recent social events have dealt a heavy blow to the commercial property market, affecting retail, hotels and office buildings, and the recent vacancy rate even in the Hong Kong Central District where has always been strong has risen.
He believes that when Hong Kong's economy is hit hard, developers will certainly be more conservative about the market outlook, plus the sum of money raised for the project will be huge, with the land price and development cost as high as to more than HKD60 billion, thus the development risks are quite high, leading developers’ bids to low. He is worried that if the developers’ bids may have a huge gap between Government’s reserve price if they refer to the commercial land prices in Kai Tak area, East Kowloon, then the possibility of failure of the bid will be higher.
The information shows that the project is located at the junction of Lin Cheung Road and Austin Road West, Kowloon, covering an area of about 643,101 sq ft, and the maximum buildable floor area is 3,164,590 sq ft, also it will be developed into a large platform shopping mall and three Class A office buildings. In the future, it can apply to the Town Planning Board for a change plan to develop it into such as commercial buildings or hotels.