Reviewing the market situation this year, the Financial Secretary pointed out that the overall property prices have dropped by about 12% compared with the historical peak in 2021; and the monthly residential transaction volume in the first half of this year has also returned to about 90% of the five-year average value before the epidemic.
Based on the above objective market conditions, the HKSAR Government believes that there is room for revising some of the objective prudential measures for mortgage lending, and that the adjustments are aimed at alleviating the downpayment expenses and insurance premiums of first-time home buyers and those who have "exchanged their flats", and emphasizes that it is not a withdrawal of the "spicy measures".
While the public's response to the fine-tuning of mortgage arrangements is mostly welcome, market participants still think that the most effective measure to boost the sluggish market is to reduce the spice across the board.
In fact, not only property prices are adjusting downwards, in the past two years, the land prices of residential and commercial sites tendered by the Government and the "One Railway One" respectively have dropped by more than 20%, and a number of commercial and remote residential sites have been unsuccessfully tendered.
Many members of the public interpreted the low land prices as a result of the downturn in the property market and the downward trend in property prices, which led to an even deeper fall in land prices! Of course, the downturn in the property market is the main reason for the low land price, but there are also many subjective and objective factors that affect the final land price. This article tries to analyze the latest residential and commercial land transactions.
First, there was the $10 billion commercial site in Kwun Tong in February, and then there was the commercial site in Sai Yee Street, Mong Kok in March, which was sold for only $4.7 billion. Market participants interpreted this as a result of the poor commercial market, but in fact, there are also many development constraints on commercial sites in Mong Kok.
The commercial site at Sai Yee Street in Mong Kok, which is adjacent to Mong Kok East Station, occupies an area of 124,000 square feet and has a total gross floor area of 1,524,000 square feet, and was sold at a price of $4,729 million, with a price of about $3,100 per square foot of gross floor area, which is about 16% lower than the lower limit of the market valuation. A closer look at the land sale provisions shows that the site is not just for commercial projects, but also involves a large number of government and social welfare facilities, including a public transport interchange, a cross-boundary bus station, a public parking lot with 800 parking spaces, a day care center for the elderly, a neighbourhood elderly center, an integrated youth service center, an integrated community center for mental health, and a community hall, all of which are government, institutional or community facilities that are essential to the success of the project.
These government, institutional or community facilities are all housed in another lower building and are required to be completed and properly handed over to the Government in December 2029 before the Government reimburses the developer for the construction costs, subject to a ceiling of $177 million in total, which covers only government, institutional or community facilities, while the construction costs of public transport interchange, public toilets, public parking lots, and so on, are excluded from the scope of reimbursement. They will be constructed in the basement portion of the main commercial building, which will increase the construction cost and delay the construction of the overall main building.
The above reimbursable construction costs are based on current cost estimates and will not be adjusted again for inflation! Furthermore, the design of the project is quite difficult. First of all, the developer has to conserve the three old banyan trees located in the center of the site, and at the same time retain adequate building separation between the main building and the other ancillary buildings. The final design may be to spread most of the floor area on a very high rise main building, resulting in a possible floor area of less than 25,000 square feet per floor and a significant reduction in the retail value of the high rise.
Of course, it is indisputable that the New Crown Epidemic has revolutionized office operations, with businesses accepting that their employees work part of the time at home and reducing their total office space requirements, which in turn has subjectively reduced the overall demand for office space. In order to avoid fragmentation of ownership, the Conditions of Sale of the Sai Yee Street commercial site do not allow for the divestment of the completed property, which has a direct impact on the timetable of the developer's return of capital. Generally speaking, the Sai Yee Street commercial site is a longer-term investment, i.e. the developer needs to start investing in the construction of the site until the end of 2029, and then proceed with the overall acceptance of the building and letting of the site, with a reasonable rent percentage to be collected no earlier than the end of 2030.
Depending on the market conditions in 2030, the overall success of leasing more than 70% of the building may be achieved only after two years.
Simply put, developers need to invest for 10 years before they can start to collect a reasonable proportion of rental income, and then continue to hold or sell the whole building depending on the situation. The current high bank interest rate may last for up to two years, and the initial interest payment is several times higher than before the epidemic!
On July 5, the Lands Department announced that Wheelock Properties, the sole proprietor of the site at the junction of Sai Ning Street and Victoria Road in Kennedy Town, Western District, had won the tender at $1.72 billion. The site is for residential use, with a site area of about 23,327 sq ft and a maximum permissible gross floor area of about 243,266 sq ft, translating into a floor area premium of $7,070, which is a new low for Hong Kong Island for more than 21 years, and a 26% setback compared to the land prices in the same district over a four-month period.
Compared to the two sites, this one is much larger than the previous one in terms of both site and floor area. The former has a floor area more than five times larger than the latter, which has both greater building flexibility but also a long building period. According to the Conditions of Sale, the successful developer of the Victoria Road site will be responsible for the reprovisioning of the public transport interchange, as well as the preservation of the Tung Wah Pox Board archway and foundation stone, and the preservation of old trees. Moreover, the Victoria Public Mortuary is facing the site, and even though there is a preliminary plan to relocate it in 2027, there are still a lot of uncertainties.
Although the application for redevelopment of the former China Merchants Warehouse Building into a commercial complex was once shelved, the future redevelopment of the building will seriously hamper the sea view of the site! To summarize, the development period of the site may be delayed for up to nine years at the longest, which is longer than the general land of about five to seven years, and also affects the developer's final bid!
As summarized by the Financial Secretary, residential property prices have dropped by 12% from the peak and commercial property prices have been reduced due to the New Crown Epidemic. However, the subjective development provisions of different sites and objective environmental factors will also determine the developer's desire to invest in the project, and the prolonged development period and complicated development conditions will definitely reduce the value of the remaining land; the use of land to build community facilities is not only a planning gain, but also a decisive factor in lowering the land price. The use of land for community facilities is both a Planning Gain and a decisive factor in driving down land prices.
The title is by the editor. The articles in this edition are the personal opinions of the authors and do not represent the position of this newspaper.
