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HONG KONG: Bidding at next week's auction of a development site in Hung Hom is expected to be cautious as a result of limits placed on the extra floor area a developer can obtain.
But at the same time, the auction is expected to be part of an overall acceleration in land sales because the government has made more land available for development with the aim of curbing price growth, surveyors said.
Increased borrowing costs as a result of rising interest rates is also likely to dampen sentiment among potential bidders, they said.
"Developers will become cautious given the government's determination to cool property price growth," Wilkinson & Associates valuation director Ringo Lam said.
Located at 7 Ko Shan Road, the site, the former Customs and Excise Service married quarters which offers a total gross floor area of 153,516 sq ft, is expected to fetch between HK$1.04 billion and HK$1.2 billion (RM403.35 million and RM465.41 million). That would represent an accommodation value of between HK$6,800 and HK$7,800 per sq ft.
Since April 1, features such as balconies, utility platforms, and clubhouses — previously exempt from gross floor area calculations — must now not exceed 10% of a development's gross floor area. Developers have previously included such areas in the total area they market to buyers, sometimes increasing gross floor areas by 20 to 50% to generate more profit.
Now, with fewer options to fudge gross floor area, developers will be less aggressive in bidding to buy sites, Lam said. Based on the expected bidding range, a winning developer would have to offer a flat in a project on the site at a price of around HK$9,000 per sq ft to generate a reasonable profit.
"In addition, the Hung Hom site is not in a prestigious location and is likely to be developed into mid-priced apartments," Lam said. "Developers will more likely keep their powder dry for another two luxurious residential sites slated for auction in May and June respectively."
Lam said he believed the upcoming auction of a residential site at the former Lingnan College in Stubbs Road in May, and another auction of land in Borrett Road in Mid-Levels in June would generate stronger bidding. "The top-end residential market caters for international buyers, including rich mainlanders, and they will be less sensitive to higher interest rates."
Midland Surveyors expects the former Lingnan College site will fetch around HK$4.1 billion, while the Borrett Road site may sell for HK$10 billion. The estimates represent an accommodation value of about HK$23,000 per sq ft for both sites.
Next Wednesday's Hung Hom auction will be the first land sale of the new financial year, which started on Apr 1. Last Wednesday, Financial Secretary John Tsang Chun-wah announced that 12 sites — nine residential and three commercial — would be offered for auction and tender between now and June.
Increased land sales come in the wake of a government promise to make available enough land for the construction of 35,400 flats within the next 12 months. Last financial year the government sold 11 residential sites and one business site by auction and tender.
Rising interest rates are also expected to curb buying. "We believe buyer sentiment has taken another turn for the worse," said Lee Wee Liat, head of regional property at Samsung Securities (Asia).
"After the recent round of mortgage rate hikes and the Hong Kong government's plan to increase land supply, we remain cautious on primary launches that are aggressively priced, and expect a decline in overall transaction volume."
Lee said the sale of Cheung Kong's Uptown project in Yuen Long over the weekend revealed decreased buyer sentiment on the back of higher interest rates. Cheung Kong sold about 300 flats or 48% of the 621 flats it put up for sale. — SCMP
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