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Just three commercial development sites will be tendered
Hong Kong’s private housing land supply has the
potential to yield 31,600 flats in the coming 2017/18 financial year—an
increase of 60% year on year—when Urban Renewal Authority units and private
developments are taken into consideration.
According to Secretary for Development Eric Ma, land
coming from the government’s Land Sale Programme will include 28 residential sites that could provide 19,000 new
apartments. That figure includes 20 new sites to be put up for tender in the
latter stages of FY2017/18. The primary source of land will be Kai Tak, where 10
sites will be released.
But whether all the residential sites promised will end up being tendered in the next financial year remains in question. "Only 19 residential sites were sold in FY2016/17, against a total of 29 sites listed," points out Denis Ma, JLL's Head of Research, Hong Kong. "The estimated delivery of 20,300 private residential units per year between 2017 and 2021 is 86% higher than the annual average of 10,936 apartments completed from 2007-2016."
Land sales in Stanley and Kowloon Tong are expected to be particularly closely watched. "The large plots on the list have higher flexibility in planning and development, and we expect these sites to attract strong interest from mainland Chinese developers," says Cliff Tse, a Regional Director with JLL's Valuation Advisory Services (VAS).
Developers have aggressively purchased land in recent months, hitting the headlines for paying record prices at land sale tenders. "They anticipate future demand will be strong," commented CK Lau, Head of VAS, Asia in an interview with Hong Kong broadcaster RTHK.
"If you look at the most recent flat sales in the first-hand market, the response has been very strong," he added, but noted that new properties may only "be affordable for certain types of investors and beyond the reach of first-time buyers, especially young local couples."
However, Lau is confident that if incentives are offered in the second-hand flat market—similar to tactics already deployed by developers to entice buyers—young people will be able to buy small units from existing stock.
Amid outcry about the diminishing size of apartments in Hong Kong, the Development Secretary used his land sale programme address to note that the Government will be keeping a close eye on the market before deciding on whether to introduce new regulations imposing a minimum size of flats. Tse expects the supply of "mini flats" to decline, as developers look to "maintain a good reputation and ensure the quality of new projects."
Currently, restricted mortgage lending and roll-out of the 15% flat rate of stamp duty is "severely" restricting flat purchases in the second-hand market. But existing property owners can expect some sweeteners from the government. Hong Kong's Financial Secretary Paul Chan used his maiden budget to waive property rates for the entire fiscal year, with the ceiling set at HKD 1,000 per quarter for each rateable property, meaning rates effectively remain unchanged from last year's budget. The entitlement period for a tax reduction on home loan interest has also been extended from 15 to 20 years. "This measure will benefit homeowners still tied to mortgage obligations against the gradual interest rate hike anticipated in the coming year," notes Ma.
For commercial property investors, the government's announcements held fewer opportunities. This year's land sale total will be dwarfed in comparison to the 5.8 million sq ft of commercial/business sites sold in FY2016/17. "The government's plan to release just three commercial development sites will mark a 68% reduction in developable GFA compared with the previous financial year," says JLL's Ma. "The plan to release fewer sites will be positive for landlords in emerging business hubs like Kowloon East, where office building vacancy levels have increased above 10% and are expected to rise further on the back of sluggish demand and the completion of new supply."
One business site in Cheung Sha Wan has been rolled over from the previous land sales programme, and two new commercial/hotel sites in Kai Tak will be up for tender in the back half of the financial year. Also, up for tender is one hotel site with potentially 172,000 sq m of floor area for 550 rooms.
"There is strong demand in the office market both for the end product and also for commercial development land," asserts Lau. "I hope that the government will be able to release more land because there is not only a shortage in the residential housing market, but also a shortage in office, logistics space and other types of land in Hong Kong."
There is scope. Commercial development sites up for sale over the next few years are expected to yield a total of 11.8 million sq ft.
Hong Kong's real estate market assisted in boosting the government's revenue to HKD 559.5 billion, more than HKD 61 billion above its earlier estimate. Record land sale revenue came in at HKD 50.8 billion and stamp duty and stamp duty brought in HKD 8 billion.
For more information about the Land Sales Programme and its impact on Hong Kong's real estate market, please contact Denis Ma or Cliff Tse.
Regional Director, Valuation Advisory Services
+852 2846 5557
Head of Research, Hong Kong
+852 2846 5135
Senior Manager, Marketing & Communications
+852 2846 5008