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Hong Kong GovernmentLantau Tomorrow"An alarm sounded in the outpost battle!" The residential site 106B in the Tung Chung East Reclamation Area, which failed to be tendered in 2023, was won by Sun Hung Kai Properties today at a "breaking price" of HK$602 million. The floor price per square foot is only HK$1,501, which is not only a sharp drop of HK$65% compared to the land price in the same area two years ago, but also set a new low per square foot price for government land residential properties in the past 11 years since the Tin Shui Wai wetland land in 2014. Industry estimates show that the project needs to be sold at a price of HK$8,724 per square foot to break even, which is set to rewrite the benchmark for residential pricing in Lantau Island.
Real estate winter emerges
This seafront plot of land covers a total area of over 100,000 square feet and can accommodate a maximum floor area of 401,000 square feet. Sun Hung Kai Properties' deputy managing director Lei Ting revealed that the company will invest HK$3.5 billion to build small and medium-sized sea view residences, which is expected to provide more than 500 units. Worth noting:
1️⃣ The land price is further discounted by 15% from the lower limit of the valuation, reflecting the shrinking risk appetite of developers
2️⃣ The break-even price is more than 20% lower than the second-hand existing buildings in the same area, which may trigger a cut-throat price war
3️⃣ The government’s first quarter land sales revenue only reached the annual target of 6%, and fiscal pressure increased sharply
The mystery of the rebirth of the failed bid site
Surveying firms generally believe that this ultra-low price transaction is related to four major factors:
✓ The infrastructure support in Tung Chung East is seriously lagging behind, and the first batch of residents may become "pioneers"
✓ High interest rates have doubled financial costs, and developers are becoming more conservative in cash flow management
✓ The purchasing power of the northern metropolitan areas is diverted, and the property market in the New Territories West is facing a saturation crisis
✓ As the Sino-US struggle continues, foreign funds are taking a wait-and-see attitude towards Hong Kong real estate
Butterfly Effect Warning
JLL research director Wong Chi-fai pointed out that this low-price transaction may trigger a chain reaction:
• Banks may lower the valuation of surrounding properties, triggering a wave of negative assets
• The Yau Tong Ventilation Building project, which is about to close for tender, faces the risk of being rejected
• The government's land supply target for the new fiscal year may need to be lowered by 20-30%
It is interesting to note that Sun Hung Kai Properties’ move comes at a time when the group’s large-scale project in Sai Kung’s Fourteen Townships is about to be launched for sale. The market interprets this move as a way to reserve land at a low price and to gain market voice through pricing strategies. Is this a classic example of counter-cyclical operations by a real estate giant, or does it reflect a structural shift in the Hong Kong property market? Let’s see how this “thermometer land” affects the future market trends.
Depth Extension
▶️ Compared with the land parcel in Tung Chung District 57 (priced at HK$6,268 per square foot) awarded in 2019, the land price this time plummeted by HK$76%
▶️ Based on the break-even price of NT$8,724, the future selling price will be 35% lower than the East Ring (average price of NT$13,500 in 2023)
▶️ The project is only 3 kilometers away from the Hong Kong-Zhuhai-Macao Bridge Port. Whether it can activate investors in the Greater Bay Area is a key variable
Further reading:
- The impact of the linked exchange rate system between the Hong Kong dollar and the US dollar on the Hong Kong property market
- From being penniless to buying property in Hong Kong: the history of wealth migration of the mainland's new rich to Hong Kong
- Reasons for the decline in Hong Kong property prices
