The land sale market has not benefited much from the full resumption of normalcy, and on the first day of the withdrawal of the masks order, SHKP won the commercial land in Mongkok yesterday at a "superb price" of $4.729 billion, with a floor area price of only about $3,100 per square foot, which is 16% lower than the latest valuation limit of $5.64 billion, which has been significantly lowered by the market.

Market participants analyzed the reason for the low price of the site, mainly because of the huge input cost of the project, but after completion, it cannot be demolished and sold, and can only rely on long-term rental income to return to the capital, in the absence of a full recovery of the economy is extremely testing the liquidity of the developer.

Moreover, after learning from last month's abortive bids for the URA's Kwun Tong Town Centre commercial projects in Areas 4 and 5, the Government has also adjusted the reserve price of the projects to speed up the launch of the sites with the aim of developing the economy as soon as possible.

The lower-than-expected construction cost of the Sai Yee Street commercial site in Mongkok reflects the developer's reservations about the future market of commercial projects, which require high risk management, payback period and cash flow.

Personally, I hope that the Government's low price for a quality site this time is a "special case", as the response to the bid is really poor, but it is a waste of resources for the Government to hold the site for a long time, rather than selling the site earlier to promote the economy and increase tax revenue.

He said that every land sale would be a market indicator, but this time, the project could not be broken up and sold after completion, and could only rely on long-term rentals to recoup the money.

On the other hand, the winning consortium will have to invest over $10 billion in construction costs and interest expenses, and the supply budget for the A building from 2023 to 24 is about 7 million square feet, so the developer has to consider the future occupancy rate of the project, prompting it to bid at a low price.

Although the residential site at Po Fung Road, Tsuen Wan, was sold at a "good price" in the middle of last month, it was a small to medium sized residential project. This is a large commercial project and the developer will have to rely on long-term rental income to recoup its capital, which clearly shows the difference in the market's attitude towards residential and commercial sites.

In the next financial year, there will be three commercial sites, especially the Admiralty Corridor project, which is the most expensive. In view of the low bidding price of the project, it is believed that the forecasted land price of Admiralty Corridor will also be adjusted downwards.

According to Mr Cheung Chiao-chor, Managing Director of ICP Consulting and Valuation, the low cost of the commercial site at Sai Yee Street reflects the current market situation and the future supply of commercial floor space.

The Government has to make trade-offs in offering commercial sites before the economy has fully recovered, i.e. granting them at a low price in exchange for the supply of floor space, but the sale of expensive sites is irreversible and reduces the Government's long-term revenue in disguise. He suggested that the government could gradually put up commercial sites for sale to "test the waters" and make up for the overall supply of space when the market has not yet fully recovered, but should not put up expensive commercial sites in prime locations for sale.

The Government should review the tendering system, for example, by adopting a "rolling tender system", whereby developers can submit their interest and pay a deposit one to two weeks before the formal tender, and then have five days to bid against each other. It is believed that this will help improve the situation of aborted bids and the habitual low bids.

A total of three bids were received at the close of the tender last week, with a consortium formed by Cheung Kong and Ying Kwan Shin Kong, in addition to SHKP.

The surveyor had already lowered the valuation of the sites in response to the recent spate of aborted bids, with valuations ranging from $5.64 billion to $10.97 billion, at a floor area of around $3,700 to $7,200 per square foot. The sites were previously valued at $18.2 billion to $22.8 billion last year.