Hong Kong sees record 6 failed land tenders as elevated interest rates, depressed home prices dampen demand for new plots, Colliers says

Only four of 10 projects launched by the government in the past 11 months drew enough bids for the tender process to continue
Besides jacking up development costs, the elevated interest rates have soured buying sentiment as Hongkongers wait for a more favourable time

Hong Kong property

Cheryl Arcibal

Published: 7:30pm, 30 Nov 2023

Why you can trust SCMP

Hong Kong saw a record six failed land tenders this year as high interest rates, a sluggish economy and complex development requirements diminished developers’ appetite to acquire new plots, according to Colliers.

The sombre view of the residential property market is likely to further depress home prices in Hong Kong. Lived-in house prices recorded a 19 per cent fall in October compared to their peak in September 2021, according to the latest official data.

In total, 10 projects were launched by the government, the MTR Corp and the Urban Renewal Authority over the past 11 months. Only four of them – three residential sites and a commercial parcel – drew enough bids for the tender process to continue.

They were an 8,360 square-metre project on Po Fung Road in Tsuen Wan, which was snapped up by Kerry Properties in February for HK$1.4 billion (US$180 million), a 2,260 sq m lot in Kennedy Town, which Wheelock Properties bought for HK$1.72 billion in July, and two parcels of land in Kai Tak, with an aggregate area of 145,303 sq ft, which were won by a consortium led by Sino Land for HK$5.3 billion in September.

Meanwhile, Sun Hung Kai Properties won the tender for an 11,537 sq m commercial site in Mong Kok for HK$4.73 billion in February.

“The primary contributing factors [to the lack of demand] were the mounting pressures faced by property developers in large-scale projects,” said Dorothy Chow, executive director, Asia, valuation and advisory services at Colliers.

“These challenges include subdued demand in the first-hand residential market, a large number of unsold units accumulated by developers, anticipated high supply in the next two to three years, increased capital costs due to rising interest rates, and long development processes which further amplify risk factors. Consequently, bidding enthusiasm among developers has been heavily dampened.”

To keep the local currency’s peg to the US dollar, the Hong Kong Monetary Authority has raised interest rates by a cumulative 5.25 percentage points since March 2022, pushing borrowing costs to a 16-year high.

Besides jacking up development costs, the elevated interest rates have soured buying sentiment as Hongkongers wait for a more favourable time to make their purchase.

“Furthermore, persistently high mortgage rates coupled with a slower-than-expected economic recovery undoubtedly contributed to the conservative mindset among potential buyers,” said Chow. “We foresee that the downward trend in property prices will continue into next year, which will adversely impact land prices as well.”

Given the many failed tenders, the government is unlikely to meet its land revenue target of HK$85 billion for the financial year that will end in March, Colliers noted. So far, revenue for land sales is just HK$12.1 billion, a mere 14 per cent of the target.

Based on the government’s land sale plan for the financial year, three sites are yet to be released to the market, including two commercial plots in Wan Chai and Admiralty and an industrial parcel in Yuen Long.

A lengthy and complicated process for getting construction plans approved is another drag on demand, according to Hannah Jeong, head of valuation and advisory services, Hong Kong, Colliers.

“In a market environment characterised by declining property prices and land values, the government should aim to reduce development costs by optimising approval and construction procedures,” said Jeong.

“This includes shortening the wait times between land sale periods and obtaining occupation permits, streamlining building plans, relaxing basement parking requirements and only requiring the provision of welfare facilities on suitable privately developed sites.”