Chinese Developers Retreat From Hong Kong Land Buys Amid Slumpby
Mainland developers skipped 6 of 8 land tenders in first half
Falling land prices set to continue in second half, says JLL
Chinese buyers slowed the pace of their Hong Kong land purchases in the first half of 2016, joining the city’s biggest developers on the sidelines and setting the stage for further price declines.
Mainland developers, who outbid Hong Kong developers in several government residential land sales in recent years, participated in only two out of eight tenders this year, according to data compiled by Bloomberg. That compares with Chinese developers including China Vanke Co. Ltd and Poly Property Group Co. bidding in all but one of the nine tenders in the previous six months, the data show.
The tepid demand from Chinese buyers adds to market headwinds as prices have dropped 12 percent from a September peak, homes sales have ground to the slowest on record and land prices in government sales have slumped. The pullback from mainland developers, on top of weak appetite from Hong Kong firms including Sun Hung Kai Properties Ltd. and Cheung Kong Property Holdings Ltd., will further damp property prices, especially outside of prime areas in the city’s central district, analysts said.
“Land prices are currently under downward adjustment, especially for land in the New Territories,” said Thomas Lam, head of valuation and consultancy in Hong Kong at Knight Frank LLP. “In the short term, it will affect the second-hand market in that area.”
Land prices in Hong Kong’s New Territories, where developers are releasing most of the new housing, have fallen 10 percent to 15 percent in the first half, Lam said, and could drop another 5 percent in the second half.
Jones Lang LaSalle Inc. noted in a report on July 7 that the winning bids on five of the eight residential land tenders came in below the low end of market expectations, with prices in select districts falling as much as 20 percent in the past 12 months.
Pressure on prices will likely intensify as the government sells more land to make property more affordable in the city. On June 29, it announced it will put out seven new plots of land for tender in the July to September fiscal quarter, with a capacity to increase the supply of residential flats by 4,760. Land prices will fall even faster than home prices, Secretary for Development Paul Chan said in June.
Taking a ‘Breather’
“The continuing decline in residential property prices has led PRC developers to take a breather from the land sales, to reassess market conditions,” Denis Ma, head of Hong Kong research at Jones Lang LaSalle, wrote in an e-mail. “Whether they will be as aggressive as beforehand, however remains to be seen.”’
Local builders including Sung Hung Kai, the city’s largest by market capitalization, Cheung Kong Property and Henderson Land Development Co. didn’t win any of the eight land parcels this year as average prices fell. They’ve been reluctant to stock up as home prices have slumped and sales of existing projects have been sluggish, making way for smaller Hong Kong property companies including Far East Consortium International Ltd. and K&K Property Holdings Ltd.
According to Midland Realty, property transaction volumes in Hong Kong fell to 26,517 during the first half, the lowest for any six-month period since it began tracking data in 1991.