30th November 2023 – (Hong Kong) Hong Kong has witnessed an unprecedented number of failed land tenders this year, leading to a sharp decline in plot-sales revenue due to the ongoing downturn in the sector. According to a report released on 30th November by Colliers International Group Inc., the city managed to sell only one-third of the land plots offered in public tenders during the first 11 months, setting a new record for unsuccessful bids in Hong Kong.
The escalating costs of funding and construction have become major deterrents for property companies seeking to acquire land, stated Hannah Jeong, the head of valuation and advisory services in Hong Kong. Jeong explained that developers are concerned about the uncertain future of residential prices, questioning whether they will increase enough to offset the margins in the next five years. This prevailing uncertainty has eroded developers’ confidence, contributing to the current market challenges.
Further analysis reveals that the six remaining unsold sites mainly consist of residential plots. Jeong also highlighted that the financing interest rate for development projects currently stands at approximately 8 per cent. Additionally, the construction costs for mass-market homes have surged to around HK$5,000 (US$640) per square foot, which is a significant increase compared to a few years ago when such pricing was reserved for luxury projects.
Hong Kong’s land supply comes from various sources, including the government, MTR Corp (the government-owned subway operator), and the Urban Renewal Authority—an entity responsible for city redevelopment.
The lacklustre performance of the land market has had a detrimental impact on the government’s revenue. The current fiscal year, ending in March, has seen land sales generate a mere HK$12.1 billion, representing only 14 per cent of the annual target. Historically, land sales have been a crucial source of income for the city, helping to maintain a low-tax system. In the peak year of 2017, land sales contributed a substantial HK$165 billion to the government’s coffers.
The exorbitant interest rates prevailing in the city are further dampening the housing market. Residential prices have plummeted to a six-year low, forcing developers to offer new apartments at discounted prices in a bid to attract buyers.
As a result of these challenges, local builders’ share prices have significantly underperformed the city’s benchmark index this year. Companies such as Sun Hung Kai Properties Ltd. and Henderson Land Development Co. have experienced declines of over 20 per cent since the beginning of the year. Meanwhile, New World Development Co. has seen its share value plummet by a staggering 46 per cent.