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Ingrid Cheh explains which development sites will be tendered in this financial year and how to take part in the tender process
FY 2016/17 was a remarkable year for the land sales market in Hong Kong, with more than 60% of the winning bids beating market expectations. Against fierce competition for development sites in Hong Kong, let's take a quick look at what the FY 2017/18 Land Sale Programme, released in February this year, has to offer:
Mainland Chinese (PRC) developers won a quarter of all sites tendered in FY 2016/17. Their interest largely focused on sites situated in Kai Tak, where they won four of the six sites sold. With 12 Kai Tak sites to be made available for sale in the coming financial year, PRC developers will likely remain active, although some recent changes in the financing environment could tip the scales.
From 1 July 2017 onwards, the Hong Kong Monetary Authority (HKMA) will apply new loan-to-value (LTV) caps with respect to lending to property developers for land acquisition and construction financing. These caps will be adjusted from 50% to 40% of the site value, and from 100% to 80% of the construction cost, with an overall cap of up to 50% of the expected value of the completed properties. The new move is more likely to affect small-to-medium sized developers with weaker cash positions, as well as PRC developers who tend to take on higher levels of debt.
Nevertheless, given a lack of land supply and Hong Kong's appeal as a safe-haven investment hub, sustained appetite from new market entrants as well as local heavyweights should lend support to land prices in the year ahead.
The process of seeking financing typically takes place two weeks after the government's release of the conditions of sale after the interested party has appointed professional consultants, including an architect to prepare schematic drawings and a quantity surveyor to produce cost estimations for the proposed development. But aside from the importance of financing, there are other steps to be considered in the land tendering process.
At around the same time, the contender should engage a valuer to assess both the land value and the value of the completed project, which should enable them to determine an appropriate bid price. Should the contender be interested in collaborating with other parties on the bid, such a valuation would also serve as an essential piece of information to push through the deal.
Given the tight six-week timeline between the release of the conditions of sale until the tender's close, interested parties are better off identifying a suitable site by referring to the government's Land Sale Programme, and subsequently undertaking a market study as part of the due diligence process. Insights on macro fundamentals such as demographics, demand and supply, as well as an assessment of suitable development mix and forms for the chosen site from the market study, should help contenders make more informed investment and development decisions.
With all that said, it's time to put a shovel in the ground!
Senior Manager, Hong Kong Research
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