New rule puts damper on Kowloon land sale

HONG KONG: New rules on floor area resulted in a lacklustre land auction yesterday as a luxury residential site in Kowloon Tong sold for HK$2.17 billion (RM861.14 billion) — at the bottom of the forecast range.

Chinachem Group outbid Tai Cheung Holdings and two anonymous bidders to win the site at Inverness Road for HK$9,537 per square foot. Surveyors had forecast the site could fetch HK$2.06 billion to HK$3 billion, or HK$9,054 to HK$13,185 per square foot. Major developers Cheung Kong (Holdings), Kerry Properties, Nan Fung Development and New World Development did not join the bidding.

The auction got off to a slow start as developers seemed reluctant to place their bids. That forced the auctioneer to lower the increment twice and warn that the site could be withdrawn from auction.

"Developers were cautious because of the new rules capping the amount of common area," Ng Shung-mo, sales manager at Chinachem, said. "The land price is reasonable based on this new rule."

Under the new rules, features such as balconies, utility platforms and clubhouses — previously exempt from gross floor area calculations — should not exceed 10 per cent of the gross floor area of a development. Developers have been known to inflate the saleable floor area by 20% to 50% to generate more profit.

If developers want to dodge the new rule, they have to secure the building plan from the Buildings Department before the rule comes into effect in April next year. But Ng said Chinachem is likely to miss the deadline as it needs to get Town Planning Board clearance before going to the Buildings Department.

The land has been zoned as comprehensive development area (CDA), said Nicholas Brooke, chairman of Professional Property Services. This means all development on the site has to get approval from the Town Planning Board.

"This site is not as clean and tidy as the ones in Kowloon Tong that were sold previously," he said.

"The developer has to submit a master layout plan of the project to the Town Planning Board for approval. [As a result,] the development could be delayed. It [is also what] brought the price down."

Brooke believes developers will still aggressively bid for a plot if it is clean and not complicated, in the sense that it does not need Town Planning Board clearance, which adds an extra layer to the approval process for the developer. "But they won't be as aggressive as before since the government has imposed a cap on the development potential."

It is the third Kowloon Tong site sold in less than three months. The last two were sold at record prices. One was bought by Chinachem for HK$1.63 billion, or HK$17,976 per square foot, last month.

Ng said Chinachem planned to invest HK$3 billion in the project.

Meanwhile, Cheung Kong executive director Grace Woo Chia-ching said last night the new government measures had caused uncertainties in the market and could further reduce flat supply.

"The industry is hoping to talk with the government about the operational details of the new measures," she said, but added that calling for a judicial review would not be the way to overturn them.

"The most direct effect is that once they come into practice, flat supply will be cut as the original floor space for building flats will now be used for building car parks," she said. — South China Morning Post