With more than 30 residential buildings over 50 years old in urban areas due for redevelopment, small Hong Kong developers priced out of multibillion government land tenders amid diminishing land supply are likely to step up acquisitions of old dilapidated buildings.
“We see more small to medium-sized developers are opting to buy dilapidated residential properties for redevelopment as they can hardly compete with cashed-up big players in government tenders,” said Alnwick Chan, managing director of professional services at Knight Frank.
It is difficult for small players to compete for land in urban areas sold by government tender and MTR Corp as these residential plots can cost over HK$10 billion (US$1.2 billion), which is out of their reach, he added.
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Knight Frank is helping clients process 20 applications on compulsory sale orders, while Savills said it was processing 10 applications on behalf of its clients. All applications for compulsory sale have to be approved by the Lands Tribunal.
The Lands Tribunal received a total of 35 compulsory sale applications in 2020, a slight drop from the 37 in 2019. Property consultants said that the fall in applications was because of the pandemic, which saw extended periods of work from home arrangements from the government as well as many companies.
Under the Land (Compulsory Sale for Redevelopment) Ordinance, developers can force a compulsory auction to buy the remaining stake in a building, if it is over 50 years old and they already own 80 per cent.
On March 1, a 59-year-old six-storey building at 93 to 95 Catchick Street, Kennedy Town, will be put on forced auction under the compulsory order, according to JLL, which has been appointed as the auctioneer for the property.
The property, majority owned by Hong Kong-listed developer Easyknit International, has 10 units and two ground floor shops. JLL said the reserve price of the property was HK$190 million.
In November, Far East Consortium International became the 100 per cent owner of a 65-year-old residential building at 287 and 289 Sai Yeung Choi Street, Mong Kok, through compulsory auction for HK$85 million. Far East had acquired 90 per cent of the building before the forced auction.
Land prices through government tenders have been trending upwards in the past few years before the Covid-19 outbreak, but the cost of land through compulsory auctions is much cheaper as developers steadily acquire stakes in it over a much longer period, said Dorothy Chow, senior director of valuation advisory services at JLL in Hong Kong.
She also said that the sites put up for sale by the government in recent years were mostly larger sites away from the city centre in areas like the New Territories.
“For development sites in urban areas, compulsory sale is a good source of land,” she said.
Not everyone is convinced about the merits of compulsory sale as the acquisitions of decrepit buildings can be time consuming and negotiations could stall for a variety of reasons.
“Buying units from individual owners in old residential buildings is getting tough and it is increasingly difficult to narrow the price expectation gap,” said Charles Chan, managing director of Savills’ valuation and professional services.
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