Hong Kong’s housing market has ranked as the world’s least affordable for the past eight years, according to Demographia.
The government, aware that soaring house prices threaten the city’s competitiveness, is tackling the issue head on.
Its goal is to provide 18,000 private residential units each year, according to its Long-term Housing Strategy.
A closer look at the sites the government has pledged to tender in its 2018/19 Land Sales Programme shows its commitment to addressing the housing crisis.
The 27 sites earmarked for residential development could yield 15,200 apartments. And still more supply could become available from land owned by the Urban Renewal Authority, MTR Corporation, or private redevelopment opportunities.
If all the sites listed are successfully awarded, it will provide the largest supply (both residential and non-residential) offered via government land sales for the past five years.
As the chart shows, not all sites pledged are always tendered within the allocated financial year. This can make competition all the more cut-throat for investors wanting to secure sites for development or to bolster their land banks.
Even with extra supply, there are concerns that house prices are rising too high, too fast. The cost of mass residential units has been steadily increasing since the beginning of 2016.
Both mass residential and luxury capital values rose more than 15% in 2017, and a further 10% growth is expected for both segments in 2018, according to JLL.
Investors and developers are watching this upward price trend carefully, and benchmarking their land sales bids accordingly.
In betting that house prices will continue to rise and rise—and tendering bids to match—developers are supporting further land price increases.
All this has a knock-on effect to Hong Kong residents, as developers sell units at higher prices—or in smaller sizes and higher density—to cover their land acquisition and construction costs.
The government has been pressured to act, introducing measures that will increase the transparency of the tender process.
In the past, land sales were conducted by private tenders. Investors would submit sealed bids, rather like at a charity auction. Only the winning price and developer was announced publicly.
Now, the government says it will reveal all bid amounts, albeit anonymously. The idea is to give participants a more realistic view of the market.
Despite high prices, and fierce competition, investors remain keen.
Low interest rates at central banks around the world have helped drive demand for assets like real estate, land, and infrastructure, while mainland Chinese developers continue their overseas quest, accounting for 40% of winning tenders in the city’s public residential land sale market over the past two years.
One of the sites that will be most keenly watched this year is the proposed 630,000 square foot commercial plot above the new Guangzhou-Shenzhen-Hong Kong Express Rail Link.
The site could provide three million sq. ft. of office space, promising to ease the supply shortage in Hong Kong’s West Kowloon district which is currently dominated by the city’s tallest building, the International Commerce Centre (ICC).
But the development needs an investor with very deep pockets. With an estimated value of US$12-18 billion, it could become the most expensive site ever put up for tender in Hong Kong.