The Hong Kong government on Wednesday withdrew a commercial plot for sale at the site of the city’s former airport at Kai Tak following a tepid response from bidders, as the city’s worst economic contraction in decades amid the coronavirus pandemic deters developers from long-term investments.
The plot, which can yield 1.16 million square feet (107,767 square metres) in gross floor area, failed to sell because property developers’ bids “failed to meet the government’s reserve price”, according to a statement by the Lands Department. It is the second-largest commercial parcel of land in Kai Tak.
Kai Tak Area 2A Site 4, Site 5(B) and Site 10 is located near the proposed Sung Wong Toi MTR station and the Kai Tak Sports Park. Valuers had cut their estimate for the plot by as much as 20 per cent, to a range between HK$6.38 billion (US$823.2 million) and HK$10.44 billion. The Lands Department’s reserve price was “out of touch” with the wider market, one of them said on Wednesday.
The withdrawal, the third involving a commercial plot at Kai Tak and fourth overall in Hong Kong since January 2018, underscored the depressed mood in the world’s most expensive real-estate market, with the economic aftermath of the coronavirus pandemic adding to business disruption stemming from almost a year of anti-government protests.
“The withdrawal is disappointing. It reflects the big difference between developers and the government”, when it comes to the outlook for Hong Kong’s commercial market, said Thomas Lam, executive director at Knight Frank.
Hong Kong’s economy shrank by 8.9 per cent year on year in the first three months of 2020 for its worst quarter on record. It was also a second successive quarterly contraction, which confirms that the city’s economy is in recession. Home prices have retreated by 8.1 per cent on average from a peak in June 2019, according to the Centa-City Leading Index, with some consultants predicting as much as a 20 per cent slide by the end of this year.
“The government overestimated the [parcel’s worth]. The market has corrected, but the [reserve] price was not in line with the market,” said Charles Chan, managing director of valuation and professional services at Savills.
He gave the example of a transaction at Silver Fortune Plaza in Hong Kong’s Central district, where prices had fallen by about 20 per cent since last year.
“I’m not surprised. The land is too big,” said Joseph Tsang, chairman at JLL. “The government should have carved [the plot] into three smaller parcels. It’s too much for one owner to take it all.”
Tsang said a complicated plan had dampened developers’ appetite. “It looks like three sites. There are roads going through it. Underground work is also needed. I think it is so complicated. Nowadays, in Kowloon East, [developers] will not pay a high price for such a large commercial parcel,” he said, adding that the withdrawal would “weigh further on the Kowloon East commercial market”.
“The land office is not sufficiently aware of the market. Its reserve price is out of touch with the market,” Tsang said.
The Kai Tak site will take years to mature, and developers had been conservative in their bids in an environment of increased uncertainty and risk amid the coronavirus pandemic, said Wong Kim-Bon, executive director of valuation and advisory services at property consultancy Cushman & Wakefield.
The site had received four bids, from Sun Hung Kai Properties, Hong Kong’s biggest developer by value, CK Asset Holdings, which was founded by tycoon Li Ka-shing, K&K Property and a consortium of Sino Land and Lifestyle International Holdings, when the tender closed on May 8.
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