The Hong Kong government has scrapped the sale of the second-largest commercial site at Kai Tak, marking the latest blow to its plans for redeveloping the former airport site.
The city’s Lands Department said that it had cancelled the tender for New Kowloon Inland Lot No. 6615 after all four bids submitted failed to meet the government’s undisclosed reserve price.
Thomas Lam, head of valuations and advisory at Knight Frank, said that the tender result was a disappointment for the market and highlighted the shortcomings in the government’s valuation of commercial projects.
“While we believe developers still have confidence in the long-term market outlook, the result reflects the significant discrepancies between the government’s and developers’ valuations on commercial sites under prevailing market conditions,” Lam told Mingtiandi.
The failure to award the lot, which is at the western edge of the 3.2 million square metre (34.4 million square foot) redevelopment scheme in Kowloon East, comes after valuers had lowered estimates of the land parcel’s value by 20 percent to between HK$6.38 billion ($820 million) and HK$10.44 billion.
The virus-fuelled slump in the Asian financial hub has also impinged on residential development plans at the former airport, with Goldin Financial Holding announcing just three days ago that it had agreed to sell a residential site on the former airport’s runway at a HK$2.6 billion loss.
Aiming Too High
Some of Hong Kong’s largest developers were behind the four bids that the government said it received for the commercial site, with the city’s most valuable builder by market capitalisation, Sun Hung Kai Properties, having submitted a solo offer, as did Li Ka-shing’s CK Asset and privately held developer K&K Property Holdings.
The fourth bid for the site, which is approved for construction of up to 107,797 square metres of grade A office and retail space, came from a joint venture between Sino Land and Lifestyle International Holdings.
While controlling housing costs has become an increasing focus for Hong Kong’s government, authorities made clear that they were not ready to conduct a land sale that did not meet their revenue expectations.
“The government will not sell a site if no bid reaches the reserve price as assessed by the government’s professional valuers,” the Lands Department said in a statement.
The Lands Department noted that the reserve price was set on the day the tender closed – 8 May – so that the latest market conditions could be taken into account.
A Land Sale Chain Reaction
“Judging from the tender result, a big gap exists between government’s and developers’ valuation for sites requiring large investment and a long payback period,” Lam told Mingtiandi.
Located near the proposed Sung Wong Toi MTR station and the Kai Tak Sports Park, the 19,788 square metre commercial site is on the inland portion of the Kai Tak redevelopment scheme near the To Kwa Wan area.
The lot is divided into three separate plots – officially designated as Kai Tak Area 2A Site 4, Site 5(B) and Site 10 – with the land use stipulating that the future development must include two sets of residential care homes, a resource centre and a child care centre.
Vincent Cheung, managing director of Hong Kong consultancy Vincorn, said that the technical challenges in linking the plots above ground and below ground, as well as meeting the other conditions of the development, may have been a major factor in the conservative bids.
“It’s not the first time a land tender has failed at Kai Tak and this may cause a chain reaction for upcoming commercial land sales on the former airport,” Cheung said, adding that there had been suggestions in some quarters that the government should change the plot’s zoning to residential rights to encourage development.
Continuing a Losing Streak
The cancelled sale continues a losing streak for the government’s efforts to sell off commercial plots on the former airport, with the Lands Department and developers failing to see eye to eye on the valuation of sites.
Last September, as the city was entering its fourth month of pro-democracy protests, the government ditched the sale of Kai Tak Area 4C Site 4 after bids failed to meet the reserve price.
It was the second time round for the government to attempt to offload the waterfront site – 30 percent of which is required to be allocated to hotel use – after Goldin Financial backed out of buying it for HK$11.1 billion, despite paying a HK$25 million deposit following a tender process three months before.
In January last year, the government dumped another site earmarked for a hotel and office complex, known formally as Kai Tak Area 4C Site 5, after bids came in lower than the reserve price.
Recovering from COVID-19
Knight Frank’s Lam said the speed of the global recovery from the COVID-19 pandemic will be critical to the outcome of future commercial land sales.
“Although Hong Kong’s COVID-19 situation has improved in recent days, the global economic freeze and the resulting difficulties in general business operations, particularly in the tourism and retail industries, will take a long time to recover from,” Lam said, noting that lower expected rental incomes under these circumstances will drive down bids in any future land sales.
“Unless the government lowers its reserve price, we believe it is not a good time to resell the Kai Tai site within this year,” Lam said.