Fewer developers submit bids for Kai Tak runway plot even as valuation is slashed to January 2017 levels

The third residential parcel on Kai Tak’s runway missed market expectations as fewer than expected developers submitted tenders, while one surveyor slashed its valuation of the plot to January 2017 levels because of downbeat sentiment, lack of full sea view and retail component.

The 97,393 square feet plot on the site of Hong Kong airport’s former runway fetched six bids at the close of tender on Friday noon, missing expectations from surveyors who had expected at least eight bids.

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“Developers are no longer bullish, but these new land tenders are for their long term investments [with a horizon] of at least five to eight years,” said Hannah Jeong, head of valuation and advisory at Colliers International. “Even though the current soft market has caused local and overseas developers to be more cautious, we were expecting more than eight bids.”

Developers that submitted bids include CK Asset, Sun Hung Kai Properties, Chinachem Group, China Overseas Land and Investment, a joint venture between K Wah International and Sino Land, and a consortium consisting of Henderson Land Development, Wheelock Properties, Empire Group and New World Development.

Jeong expected the plot’s value to fall short of previous ones. She slashed its valuation to HK$12,800 per square foot, back to the level seen in January last year when Chinese conglomerate HNA’s subsidiary bought a parcel at HK$13,000 per sq ft.

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“Developers will put lower bids to take advantage of the current soft market,” Jeong said. “The site also does not have full view of Victoria Harbour and it has no retail component to boost the tender price.”

Colliers expects the bids to range between HK$12,800 to HK$14,000 per sq ft, lower than the previous lots. It, however, expects completed homes to sell for between HK$25,000 to HK$35,000 per sq ft, or an average of $27,000 per sq ft.

At a plot ratio of about six times, the parcel can be developed into a gross floor area of up to 594,087 sq ft.

James Cheung, executive director of Centaline Surveyors, however increased its valuation of the parcel to HK$9.2 billion, or HK$15,500 per sq ft, up 7 per cent from HK$8.61 billion – the same as the last sale – because of high demand for land in the city centre.

Ng Kwok-ting, deputy development manager at Chinachem Group, said their bid had taken into consideration the rising interest rates, tender prices of the previous two Kai Tak sites that sold at HK$14,502 per sq ft and HK$15,497 per sq ft last month and the latest sales result of the new development in the area.

Colliers’ Jeong remained upbeat on the development potential of the area.

“For the next decade, the Kowloon East central business district development will have similar commercial business scale, with grade A office stock reaching 17 million sq ft, to Central and Admiralty, where grade A office stock will reach 22 million sq ft,” Jeong said. “Therefore, in the long term, residential demand in Kowloon East central business district will continuously support the Kai Tak residential area.”

Home prices in the city have been falling since August after a bull run of 28 months. Centa-City Leading Index, the home price index compiled by Centaline Property Agency, dropped 0.5 per cent to 174.74 for the week ended December 16. It has fallen 6.36 per cent in 12 weeks, the longest losing streak since November 2008.

The index is now back to the level seen in March. Wong Leung-sing, senior associate director of research at Centaline, said he expects the index to continue falling up to the second quarter of next year to 160 – a level last seen in July 2017.

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