Hong Kong land tender fails in property market setback

FROM Hong Kong in the Far East to New York the epicentre of US coronavirus outbreak, where buyers pay top dollar for real estate, the pandemic has upended the property sector of both destinations and others in between.

A plot of land at Hong Kong’s former Kai Tak airport has failed to sell at auction in a sign the city’s worsening economic crisis is starting to take its toll on the property market.

The government rejected all four offers received for the 4.9-acre (19,788 sq m) site after they failed to meet the reserve price, it said in a statement late Wednesday. It’s just the seventh failed government auction in the past eight years in the city, and the second since anti-government protests started in June.

It’s also a reversal from the heady days of last year, when developers were paying top-dollar for land at Kai Tak. Roughly the size of New York’s Central Park, and jutting into Victoria Harbour just across from Hong Kong island, the old airport site offers a rare opportunity to develop prime real estate in the centre of one of the world’s most densely populated cities.

Hong Kong’s economy has been buffeted by last year’s protests, and then the coronavirus outbreak. The city had its worst slump on record in the first quarter, and key economic drivers such as tourism and retail sales are in freefall.

“Even though the pandemic situation in Hong Kong has improved recently, the economy is expected to be unstable and business will be difficult,” said Thomas Lam, an executive director at Knight Frank LLP, who valued the plot at between Hk$6bil (Us$774mil) and Hk$7.1bil.

“Industries like tourism and retail will need a long time to recover, so the rental income from this type of commercial plot will likely decline,” he said.

The four bidders were for the site were Sun Hung Kai Properties Ltd, CK Asset Holdings Ltd, K&K Property Holdings Ltd, and a joint offer from Lifestyle International Holdings Ltd and Sino Land Co, the government said.

To be sure, the plot may have had less appeal to developers, because it can’t be used for a residential project.

“The government will not speculate on the reasons accounting for the bids placed by tenderers,” the statement said. “Bids put forward depend on a myriad of factors, such as the attractiveness of the site to individual tenderers, as well as how individual tenderers consider market conditions.”

On the other side of the world in New York, apartment leasing plummeted in New York City last month. And why wouldn’t it? It was impossible to move.

Most businesses were shuttered from mid-march on and the state imposed social-distancing rules to limit the spread of Covid-19, effectively outlawing in-person home showings. As a result, new leases in Manhattan tumbled 71% in April from a year earlier, appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate said in a report Thursday.

Brooklyn and northwest Queens didn’t fare much better -- they had declines of 67% and 65%, respectively. For each of the three boroughs, the slide was the steepest in records going as far back as 2009.

The lack of new deals may force landlords to reduce rents once the lockdown eases and they get a truer picture of demand. Prospects look bleak right now, with unemployment spiking and work-from-home mandates pushing renters to question their desire to live in the city.

“As the physical act of showing property is allowed, we will see more new leases and the potential for softer price trends,” said Jonathan Miller, president of Miller Samuel.

Manhattan’s vacancy rate rose to 2.42% in April, the highest for the month in at least 14 years. Apartments there rented for a median of US$3,650.

Brooklyn and northwest Queens – the neighbourhoods of Long Island City, Astoria, Sunnyside and Woodside – had median rents of US$3,259 and US$2,970. — Bloomberg