Hong Kong builders pay US$1 billion for first plot on runway of old Kai Tak airport

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What a difference six months makes.

A plot of prime waterfront land in Hong Kong has sold at a price that is 18 per cent lower than a comparable tender in the same area.

A consortium of four major local developers won the auction for the first residential site on the runway of the former airport at Kai Tak for HK$8.33 billion (US$1.06 billion).

Voyage Mile, a unit of Wheelock Properties, New World Development, Henderson Land Development and Empire Development Hong Kong won the bid, the Lands Department announced on Wednesday.

At the last auction in May, Sun Hung Kai Properties paid a record HK$25.16 billion, or HK$17,776 per square feet compared to HK$14,500 sq ft in Wednesday’s auction.

However, it was in line with the market expectations, as surveyors cut the value of the site by as much as 15 per cent to HK$7.75 billion, or HK$13,500 per sq ft, showing a cooling appetite for risk as market sentiment continues to soften.

The site in Kowloon East, overlooking Victoria Harbour, with a gross floor area of 574,615 sq ft (53,383 sq metres) is expected to feature 900 to 1,200 luxury flats that could roughly fetch HK$28,000 per sq ft.

Eight bids were submitted for the Kai Tak parcel at the close of the tender last Friday.

The site is the 15th plot on the site of the old airport put up for tender by the government since 2013. Analysts said the tender was closely watched because it was expected to set a benchmark for the remaining sites on the runway.

“The price fetched was disappointing,” said Kenneth Cheung Chor-yin, executive director of Citiland Surveyors. “It is the first one on the runway with an ocean view. Plots such of such quality are rare.”

Cheung said the only reason for the low price was because developers expect the market to continue to sour. “It will affect the prices of the remaining sites on the runway as developers will lower their offer price.”

The tender for a second site, next to the one sold on Wednesday, closes on Friday.

Thomas Lam, head of advisory and consulting at Knight Frank, said that because of the growing uncertainty in the market even the bigger developers are teaming up to share the risks.

Hong Kong’s property prices snapped 28 consecutive months of gains in August, after the government proposal for a vacancy tax in June forced developers to add completed flats to the housing stock and higher mortgage rates doused the urge of property speculators.

A price index that tracks lived-in homes in Hong Kong fell 1.44 per cent in September from the previous month, the second straight monthly decline, according to data released by the Rating and Valuation Department, significantly larger than the 0.08 per cent decline in August.

Hong Kong’s property prices may decline by between 5 and 10 per cent over the next 12 months, from their peak in the third quarter, according to a forecast by S&P Global Ratings.

Goldman Sachs, however, said in a report that it expects home prices to fall by 15 per cent as city’s mortgage rates are expected to rise by up to 160 basis points by 2020 from current levels.

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