Hong Kong’s failed land tender reflects weak outlook, derails urban renewal efforts

Name: SCMP
Telephone: +852-2680-8888

Development costs, poor returns may be holding back developers from URA joint ventures, analysts say

Reading Time:3 minutes

Why you can trust SCMP

General view of Kowloon City Market and Cooked Food Centre in Kowloon City. Photo: Yik Yeung-man

Cheryl Arcibal,Vivian AuandSalina Li

Published: 10:00am, 31 Oct 2024

Hong Kong’s failure to sell a commercial site in Kowloon City this week represents a twin blow to the property market. The lone bid from CK Asset Holdings showed developers remained guarded on the outlook, derailing the government’s urban renewal efforts in the area.

The Urban Renewal Authority (URA) on Tuesday rejected the joint-venture offer from CK Asset, a developer controlled by the family of billionaire Li Ka-shing, for a site on Kai Tak Road/Sa Po Road. The bid contained additional terms that deviated from the development plan, it added.

Developers could not come up with a bid to generate a reasonable level of profits based on the conditions in the tender document, according to a source at a real estate company in Hong Kong, suggesting the development costs may be too high. Besides, the property market’s performance in September was still poor with prices still under pressure, according to Knight Frank.

The Urban Renewal Authority aims to jointly redevelop the site at Kai Tak Road and Sa Po Road in Kowloon City. Photo: Dickson Lee

“The URA has already provided some flexibility to potential bidders such as payment by instalment,” said Vincent Cheung, managing director of Vincorn Consulting and Appraisal. “It cannot reduce the reserve price too much to match the market bid.”

The cost of acquiring the site may be inflated by money spent on gathering all the individual or strata-title units, before offering to co-develop it with other partners. The URA also has to source its own capital to undertake the project, Cheung added, the most recent being via a HK$12 billion (US$1.5 billion) bond sale in August.

Under its charter, the statutory body is tasked with improving the standard of housing and the built environment through urban renewal programmes, among others. It had a HK$3.9 billion deficit in 2023-24 financial year, a second straight year of imbalance. A HK$3.1 billion provision for projects that could be devalued, plus a HK$830 million operational deficit, contributed to the shortfall.

The Kai Tak/Sa Po Road tender had received 30 expressions of interest from developers and business groups before the tender was opened for bidding. The 5,307-square-metre site could provide 810 residential units, and the winner would need to build a “sunken plaza” linking up with a planned underground shopping street.