1) Ap Lei Chau Land residential land sold for record price
Ap Lei Chau Inland Lot No 136 measuring 126,595 square feet (11,761 square metres) was sold for a record HKD16.86 billion (USD2.17 billion) last week. The buyer is a joint venture between Logan Property Holdings of Shenzhen and KWG Property Holdings based in Guangzhou. The site has a total gross floor area of 762,091 sq ft (70,800 sq m). This translates into HKD22,118 per sq ft, which was 50% above the market expectations. (Source: SCMP, February 2017)
In fiscal year 2016/2017, the total land sales volume in Hong Kong was HKD102 billion (USD13.1 billion) for 30 land lots across Hong Kong in various districts. Of this total, HKD41.6 billion (40.8%) or six lots were bought by Mainland Chinese developers and investors who have become very active in the Hong Kong property market. Mainland investors’ activity was concentrated on residential land, in the Kai Tak, Yuen Long, Yau Tong and Ap Lei Chau districts; and their bidding prices have consistently surpassed the market expectations by wide margins.
The newly released 2017-18 Land Sale Programme (the Programme) contains 28 residential sites and 10 of them are in Kai Tak, while many others are located in emerging markets such as Kwun Tong, Yau Tong and Sha Tin. In view of the activity observed from Mainland Chinese bidders in the 2016/2017 land sale, Colliers expects more Mainland players to enter the Hong Kong market during the upcoming land sale programme.
2) Three sites to provide 1.85 million sq ft of commercial space
The Lands Department has announced the 2017-18 Land Sale Programme on 23 February 2017. The Programme comprises three commercial/ business sites and one hotel site which can provide about 1.9 million sq ft (0.2 million sq m) of gross floor area and about 550 rooms. A business site in Cheung Sha Wan will be sold by Q2 2017 while two commercial/ hotel sites in Kai Tak are scheduled to be sold between Q4 2017 and Q1 2018. (Source: Lands Department)
The commercial or office space provided by the new programme is much lower than the 5.8 million sq ft (0.5 million sq m) provided by the previous programme. The Lands Department has scheduled the sale of three rolled-over commercial sites in Q1 2017, including the Murray Road Car Park site in Central. Despite the upcoming commercial land supply, we expect Grade A office rent in Central to increase in the coming three years before the completion of the Queensway Redevelopment and the completion of Murray Road Car Park site around 2020. For the Kowloon market, with 3 million sq ft (0.3 million sq m) (NFA) of new office supply, we expect a further downward adjustment in rents and capital values.
3) Home price to remain stable despite increasing new supply
The 2017-18 Land Sale Programme comprises 28 residential sites capable of providing about 18,900 flats. Package 1 of the West Rail property development project at Kam Sheung Road Station and the property development projects owned by the MTR Corporation Limited at LOHAS Park, Ho Man Tin Station, Wong Chuk Hang Station and Yau Tong Ventilation Building are estimated to provide a total of some 8,030 flats. Taking into consideration the land supply from projects of the Urban Renewal Authority and private redevelopment or development, the total potential private housing land supply in the next financial year is estimated to have a capacity to produce about 31,600 flats. (Source: Lands Department)
Valid Industrial Centre and Million Centre were the two major transactions in Kwai Chung in 2016, sold for HKD170 million (USD21.9 million) and HKD255 million (USD32.9 million), respectively. Based on the GFA of 57,734 sq ft (5,363 sq m) and 58,816 sq ft (5,464 sq m), the unit rates were HKD2,945 (USD379) per sq ft and HKD4,336 (USD559) per sq ft, lower than the average price in Kowloon East.
The government has set a yearly supply target of 20,000 residential units for the last several years. However, according to the data of Ratings and Valuation Department, the actual supply is well below the target. In 2016, just 14,595 units were completed.
Despite the increased sale of residential units in the 2017-18 Land Sale Programme, we believe the prices are unlikely to soften in the short term amid limited supply and negative real interest rate environment. Colliers expects home price to increase by 0-5% in 2017.
4) Investor sold retail shop at a loss amid sluggish retail market
Koon Wah Mirror has acquired the G/F, 1/F and 2/F shops in Po Wing Building in Causeway Bay for HKD468 million (USD60.3 million). At a current monthly rent of HKD1.5 million (USD0.2 million), the transaction results in a yield of 3.85%. In addition to this sale, in 2014 the vendor sold the G/F shop for HKD210 million (USD27 million). The seller acquired the whole space in 2012 for HKD1,142 million (USD147 million). Compared to the buying price in 2012, the recent sales result in a loss of HKD464 million (USD60 million) (Source: Hong Kong Economic Times, February 2017)
We consider a 3.84% initial yield is high for a street-shop transaction on prime street. The completion of Hysan Place in 2012 has diluted the foot traffic and shopping activities for the shops along Percival Street, which is probably the reason why the owner is willing to sell at a lower price amid the slowdown of the retail market.
According to the data of Census and Statistics Department, the total retail sales value has declined for 22 months since March 2015. Despite some signs of recovery, market conditions remain tough, and so we do not expect retail sales to return to the peak levels of 2013 in the near future. Therefore, investors who have bought shops at high prices during the peak may have to sell at a discounted price for other investments.