Proactive landlords are reaping the rewards of adopting a flexible rental framework according to Niall Rowark of Office Services, as he sees an emerging trend around lower vacancy rates. And Stella Ho of Valuation & Advisory Services concludes that the government should leverage the current market sentiment for developers’ recent moves in the New Territories and collaborate with the private sector to help remedy Hong Kong’s long-standing housing issues.
Rewards for strategic landlords
Whilst we have seen rents drop quite significantly since the height of the market in mid-2019, landlords that have been proactive in their rental frameworks are now achieving much lower vacancy rates in comparison to those that didn’t.
This can be seen with certain landlords in Central that have seen significant vacancy rates drop to between 1% - 6% or are experiencing consistently low vacancy rates in 2021. As a result of the proactive nature of these landlords, they are also seeing a slight increase in transaction activity or an increase in rents achieved throughout their portfolio.
This has been exaggerated due to lackluster demand in Hong Kong since H2 2019 where we saw negative overall net take-up for eight quarters in a row up until Q2 2021. We have, however, begun to see activity throughout the CBD pick up. Net take-up in Central was positive for Q2 2021, which was the first time since Q2 2018. Also, the Volume of Office Transactions in the Land Registry are up 288% for H1 of 2021 compared with this time last year.
Bold moves for Kerry Properties
The recent eye-popping government land sales in the New Territories have galvanised the district with developers accelerating acquisitions and planning applications. Kerry Properties acquired 17 agricultural lots in the Kwu Tung North New Development Area last month for a total consideration of around HK$500 million.
The current lots have restrictions to consider which will impact their end purpose. These include limited good quality road access and roughly 60% of the lots are zoned Residential (Group B) under the OZP (Outline Zoning Plans), while the rest are Open Space or Road.
It was reported that the land is from the agricultural land reserve, and part of it will be used for private residential developments. There is also overall positive sentiment in the Kwu Tung New Development Area will lead to developing Kwu Tung North into a leading community.
Developers have found other ways to invest in residential developments. CSI and Lai Sun Development (00488) recently got the green light from the Town Planning Board to change the use of the land of their jointly-owned Lai Sun Yuen Long Centre to residential use. The property, at 21-35 Wang Yip Street East, Tung Tau Industrial Area, Yuen Long, is close to Long Ping Station on the West Rail.
According to the latest market news, Kerry and Lemon International have completed a land exchange agreement with the government for agricultural land on Shap Pat Heung Road, Yuen Long, at a premium of about HK$1.136 billion (approx. AV HK$4,637). With a site area of more than 70,000 sq. ft, the project was granted building plans in 2018 to construct two 25-storey residential development blocks, providing approximately 400 units.
Cheung Kong Holdings has reached a land exchange agreement for a piece of agricultural land between Kam Tai Road and Kam Tin Bypass in Kam Tin, Yuen Long, for approximately HK$388 million (approx. AV HK$2,820). The project for the construction of eight blocks of five-storey residential units with a total gross floor area of about 137,600 sq. ft. was approved in 2018.
Developers are actively exploring opportunities to tap into the rising residential market in the New Territories, some by converting non-residential assets – industrial sites and agricultural land – into residential land.
The government should take advantage of the current momentum and release more agricultural land for residential supply. The private sector can play a pivotal role in solving Hong Kong’s housing shortage if the government keeps an open mind and provides economic incentives to them.