Editorial:Bargain Price Highlights Land Sales Dilemma

【明報專訊】Recent months saw a series of abortive tenders involving several large-scale land development projects in Hong Kong. As tenders for it were opened yesterday (1 March), a commercial site on Sai Yee Street in Mong Kok has avoided the same fate. Still, the winning bid was about 16% beneath the lower limit of market valuation.

With a gross floor area of more than 1.52 million square feet, the Sai Yee Street commercial site is a premium lot. The winning bidder will be responsible for the construction of pedestrian connections to nearby buildings, public parking lots, as well as government and social welfare facilities. The government received three bids before the cut-off date last week. In terms of the number of tenders, things were in line with expectations. At one point last year, the site was valued as high as $20 billion. In response to the recent concatenation of abortive land tenders, market observers had lowered the valuation of the site before the tender closed last week to between $5.6 billion and $11 billion, or a floor area price of about $3,700 to $7,200 per square foot.

The government opened the tenders yesterday, and the winning bid was $4.729 billion. This translates into a floor area price of $3,103 per square foot, or about 16% below the lower limit of market valuation. The authorities had repeatedly stated that they were not in a rush to sell land simply because of a budget deficit, and would "stand firm" over the reserve prices in land sales. The bargain the developer struck this time will inevitably arouse controversy. However, with the circumstances so unfavourable, it would be far from ideal for the government to stick to the reserve prices in return for failed tenders. To a certain degree, frequent abortive bids will affect external confidence in Hong Kong's recovery, and even the stability and continuity of land supply.

Last week the Development Bureau announced a land sale plan for the new financial year, including 12 residential sites, 3 commercial sites and 3 industrial sites. According to the authorities, together with schemes such as railway property developments and Urban Renewal Authority projects, an estimated number of over 20,000 units can be built from the potential land supply for the whole year. The figure is a new high in five budget years. However, if land tenders are aborted so frequently in the next financial year, the actual supply might be far lower than the authorities' expectation.

Of course, the property market has shown signs of recovery, and the bidding landscape for residential land is expected to improve in the second half of the year. However, it is believed that commercial land will still face greater pressure. In the second half of last year, the Tai Lam residential site at Tuen Mun and the commercial/residential land at Kai Tak were sold at low prices, which made developers think that there would be more opportunities to snap up a bargain. Now that the Mong Kok commercial site has been sold at a bargain price again, it cannot be ruled out that developers are more inclined to submit lower bids in the short term to see if there is another chance to win a land site at a low price.

Hong Kong's economic recovery has just begun. The government must seize the time to plan for the future. Many development opportunities might be lost if the government waits for a booming market to launch large-scale commercial site sales. While the government inevitably needs to consider market conditions when setting the reserve prices for land sales, it must never sell land cheaply without good reasons. As developers tend to be conservative and prudent when placing their bids at this stage, the authorities can try reducing some sales conditions that bring uncertainties or risks to investors when inviting tenders. As for some large-scale new development area projects, the authorities can consider the actual situation and divide these projects into multiple items. This will reduce the investment risks of potential bidders and their difficulties in securing loans or financing, thus reducing the likelihood of abortive bids.

明報社評 2023.03.02:商業靚地低價批出 惜售難不惜售也難







/ Glossary生字 /

concatenation:a series of things or events that are linked together

snap up (sth):to buy or obtain sth quickly because it is cheap or you want it very much

prudent:sensible and careful when you make judgements and decisions; avoiding unnecessary risks

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