Why was the winning bid for commercial land in Laundry Street much lower than expected?
Mar 15, 2023
Hong Kong
By   28HSE Editorial
  • City News
  • Laundry Street Commercial Land
  • Land for Sale
  • Commercial Land
Abstract: With the market full of uncertainties, the non-disposable nature of the project and the high development costs, the bidding price was lower than expected.

The recent abortive bids for three sites, including the luxury residential site at Wan Kok Road, Stanley, the commercial site at Yue Man Square, Kwun Tong and the development project at Siu Oyster Bay, reflect the conservatism and prudence of the developers. However, the highly anticipated commercial site at Sai Yee Street, Mongkok, avoided abortive bidding but was 16% below the lower market limit.


The site, located at the junction of Sai Yee Street and Argyle Street in Mongkok, was dubbed the "King of Commercial Land" and was awarded to SHKP for $4.729 billion. Based on a maximum of 1.52 million square feet of floor area, the land price per square foot is only about $3,103, which is 16% lower than the lower limit of the market.


The valuation of the commercial site has been falling since it was included in the land sale list. According to the information available, in February last year, the valuation of the site ranged from $18.2 billion to $22.8 billion, with a floor area price of about $12,000 to $15,000 per square foot; by the time the tender was invited in February this year, the valuation had dropped to about $5.64 billion to $10.97 billion, with a floor area price of about $3,700 to $7,200 per square foot, i.e. a significant drop of over $10 billion in one year.


Although the project will require the construction of an additional community hall and public transport interchange, which will increase the construction cost, the winning bid is still lower than expected. Land sales and premium payment are an important source of revenue for the Government. The frequent abortive bids for land sales will definitely affect the Government's revenue, and many people are therefore concerned that the Government is selling land at a low price in order to generate revenue from land sales.


In response to the concerns about land being sold cheaply, the Development Bureau reiterated that the valuation of the land sale was conducted by a professional surveyor from the Lands Department, based on the development and requirements allowed in the tender, with reference to the land and property transactions in the market and the latest market conditions.


Why was the winning bid for this commercial site much lower than expected?


Firstly, according to Financial Secretary Paul Chan, the Government is now adopting a "follow-the-market" strategy in land sales, presumably in view of the recent low bids for a number of commercial sites, and has adjusted the reserve price of the site in response to market conditions.


In addition, the overall vacancy rate of Grade A commercial buildings in Hong Kong continues to be high, and in a market full of uncertainties, the development of the project is not a good idea.


In addition, given the uncertainty of the market, and the high development cost of the project, the developer's bid was relatively conservative and there was a risk of losing the tender, but the site was successfully awarded at a low price this time.


The low price of the land sold has naturally aroused criticism, and there are concerns that the price of the transaction will become an indicator in the future, thus changing the developers' bidding strategy and making cheap land sales the new norm. Therefore, there is a view that the Government could first withdraw the site and abort the tender on the grounds that the price is too low, and then re-launch the project when the market conditions improve.


Ideally, the Government could do this, but it would have an impact on the revenue of the Treasury. On the other hand, if the tender is eventually aborted and the site is put up for tender again, there is no guarantee that the price will be higher than the current price, but it may be lower.