Feb 15, 2016
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Investors brace for Hong Kong land sale as property market shows cracks

Feb 15, 2016

Investors in Hong Kong will be closely watching a land sale next week for signs of further cracks in one of the world's most expensive property markets, which is coming under pressure from a slowing economy and government efforts to increase housing supply.

A plot of land sold last Friday in the outlying Tai Po area in northern Hong Kong fetched far less than market watchers had expected, alarming property-related businesses which rating agency Fitch estimates may account for nearly a fifth of the city's economic output.

The next public land sale on Feb. 26 will feature a plot in a more central location, where market watchers hope prices will prove to be far more resilient than in the suburbs.

Standard & Poor's on Monday forecast Hong Kong's home prices will fall 10 to 15 percent this year and transaction volumes will be flat to 5 percent higher, while land prices will also ease.

"However, we do not expect this is a one-way downward spiral for land prices to further correct very much," S&P's credit analyst Esther Liu told a phone conference.

"The mitigating factors include the fact that the Hong Kong government is unlikely to sell the land very cheaply, and that the land market is also (attracting) some Chinese developers."

S&P estimates that Hong Kong developers could withstand a 30 percent drop in sales prices with no impact to their credit ratings.

On Friday, a 37,696 square metre-site in Tai Po sold for HK$2.13 billion ($273.63 million) to Asia Metro Investment Limited, a unit of Chinese state-owned developer China Overseas Land & Investment Limited.

The price was much lower than the HK$3.7 billion to HK$6.1 billion forecast by surveyors, a shortfall which analysts attributed to a judicial review on development in the area.

"There's uncertainty (in this land development) so developers were more cautious; but future land sales will very much depend on the location," Alvin Lam, director of Midland Surveyors Limited.

"The sale last week will have little impact on land parcels in central and luxury areas because future supply of this kind of land is rare. Developers are more confident in them and I expect more competition."

The Feb. 26 tender features a 9,074-square-metre parcel in Kowloon, which Lam expected to sell for around HK$10,000 per square foot, compared with around HK$1,848 per square foot for the Tai Po plot.

$1 = 7.7841 Hong Kong dollars


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