Hong Kong land price plunges nearly 70 per­cent

The Pak Banker - - BUSINESS -

In the lat­est sign that Hong Kong's prop­erty cor­rec­tion is deep­en­ing, a par­cel of land sold by the govern­ment in the New Ter­ri­to­ries went for nearly 70 per­cent less per square foot than a sim­i­lar trans­ac­tion in Septem­ber.

The 405,756 square foot (37,696 square me­ter) site in Tai Po sold for HK$2.13 bil­lion ($274 mil­lion) or HK$1,904 per square foot, in a ten­der that closed on Feb. 12, ac­cord­ing to the Hong Kong Lands Depart­ment web­site. The buyer was Asia Metro In­vest­ment Ltd., a sub­sidiary of China Over­seas Land & In­vest­ment Ltd.

The plunge in the price of land comes amid weaker ap­petite from Hong Kong de­vel­op­ers against the back­drop of a nearly 11 per­cent drop in hous­ing prices since their Septem­ber high, ac­cord­ing to the Cen­taline Prop­erty Centa-City Lead­ing In­dex. In Jan­uary, sales of new and sec­ondary homes reached their low­est monthly level since Cen­taline started track­ing data in Jan­uary 1991.

Hong Kong home prices surged 370 per­cent from their 2003 trough through the Septem­ber peak be­fore the cor­rec­tion be­gan, spurred by a ris­ing sup­ply of hous­ing and a slow­down in China. Lower prices paid for land could even­tu­ally lead to cheaper home prices down the road, and are viewed as a lead­ing in­di­ca­tor of the neg­a­tive sen­ti­ment on the mar­ket.

Adding to the down­ward pres­sure on prices was the govern­ment on Jan. 13 rais­ing its five-year tar­get for new hous­ing sup­ply to 97,100 new homes, up from a pre­vi­ous es­ti­mate of 77,100 units.

The Tai Po sale came on the heels of a par­cel of land sold by the govern­ment in Kowloon on Feb. 3 for HK$4,249 per square foot in Sham Shui Po district to a sub­sidiary of Vanke Prop­erty (Hong Kong) Com­pany Ltd., ac­cord­ing to Bloomberg In­tel­li­gence. Re­cent land sales have been dom­i­nated by main­land Chi­nese de­vel­op­ers. Hong Kong prop­erty com­pa­nies have been less ac­tive, as they're strug- gling to sell ex­ist­ing units in their in­ven­to­ries and of­fer­ing dis­counts of more than 12 per­cent to en­tice new buy­ers. Ni­cole Wong, head of prop­erty re­search at CLSA Ltd. said main­land com­pa­nies are out­bid­ding their Hong Kong coun­ter­parts be­cause they ex­pect lower mar­gins and are also anx­ious to park money off­shore given the de­val­u­a­tion of the yuan.

"You see more Chi­nese de­vel­op­ers for th­ese lower en­try sites be­cause they are bet­ter than their projects in China in terms of prof­itabil­ity, " she said in a phone in­ter­view. "And be­cause of the ren­minbi de­pre­ci­a­tion, some want to get money out."

Still, Wong cau­tioned against draw­ing con­clu­sions on the ba­sis of two land trans- ac­tions, as it's im­pos­si­ble to find two sites that are iden­ti­cal. She es­ti­mates land prices over­all have fallen about 15 per­cent since their peak, based on the as­sump­tion that hous­ing prices have fallen about 10 per­cent and land ac­counts for about 60 per­cent of over­all de­vel­op­ment costs.

Hong Kong Chief Ex­ec­u­tive Le­ung Chun Ying has in­tro­duced a raft of mea­sures to cool the prop­erty mar­ket since 2012 af­ter a rally in home prices fu­eled com­plaints of a widen­ing wealth gap. Now that prices are fi­nally start­ing to fall, prop­erty an­a­lysts in­clud­ing Ray­mond Ngai of Bank of Amer­ica Corp.'s Mer­rill Lynch unit ex­pect the govern­ment will ease the mea­sures.

Rat­ings com­pany Stan­dard & Poor's is­sued a re­port Mon­day pro­ject­ing a 10 per­cent to 15 per­cent de­cline in prop­erty prices, and said that they would need to fall 30 per­cent be­fore trig­ger­ing a rat­ings down­grade on Hong Kong de­vel­op­ers.

Hong Kong ranked as the most ex­pen­sive hous­ing mar­ket among 87 ma­jor metropoli­tan re­gions, ac­cord­ing to the an­nual De­mographia In­ter­na­tional Hous­ing Af­ford­abil­ity Sur­vey, which used data from the third quar­ter of 2015. The me­dian home in Hong Kong costs 19 times the me­dian an­nual pre­tax house­hold in­come, the high­est mul­ti­ple De­mographia has mea­sured, and up from 17 in last year's re­port.

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