Hong Kong property: developers give land for starter homes in Tsuen Wan the cold shoulder as market struggles with high rates, low demand

Only Grand Ming Group bid on deadline day for the parcel earmarked for 1,950 flats that must be offered as starter units priced at 80 per cent of market value
The ‘complicated’ nature of the project, which comes with numerous restrictions, may also have put developers off, according to analysts

Hong Kong property

Salina Li

Published: 5:43pm, 18 Aug 2023

Why you can trust SCMP

The tender for a plot of land in the western New Territories earmarked for almost 2,000 starter homes for middle-class families has been met with an icy response from developers, as Hong Kong’s property market creaks under the weight of high interest rates and subdued sentiment.

The “complicated” nature of the project, which comes with numerous restrictions, may also have put potential bidders off, according to analysts.

The 1.05 million square-foot parcel at Yau Kom Tau, Tsuen Wan, went on sale by public tender on June 23. It is earmarked for 1,950 flats no smaller than 280 square feet that must be offered as starter units priced at 80 per cent of market value.

Only one bid was submitted on Friday, the last day of the tender period, by Grand Ming Group Holdings. It is unlikely that many, if any bids, preceded it, although the government has yet to reveal the number of submissions.

“The tender had been expected by the market to only receive a moderate response, but from what we are seeing today, the number of bids will be even less than what we were expecting, only lukewarm,” said Alvin Lam, director at Midland Surveyors.

03:17

Housing wait continues for young Hongkongers despite government youth hostel scheme expansion

“Interest rate hikes will have deterred developers and made them more conservative in their bidding, while the current property market atmosphere makes it difficult for them to predict future selling prices.”

Tsang Ka-man, the executive director of Grand Ming Group, said the developer has been monitoring land purchase opportunities over the past year, and has itself adopted a more cautious approach to land investment.

“We believed the construction cost is manageable and therefore bid for the project,” said Tsang. She believed the many restrictions in the terms and conditions had deterred other bidders.

Only Hong Kong residents who have lived in the city for at least seven years and never owned a home in the city are eligible. Their income should fall between the limits for applicants for the Home Ownership Scheme and a level 30 per cent higher.

The aim is to assist those who are not eligible for Home Ownership Scheme (HOS) flats and cannot afford private housing, according to the Housing Bureau.

“The project is a bit complicated, with many restrictions, and targeted at a very specific market,” said Lam, adding that the lack of flexibility implied by the restrictions increases the risks for developers.

“If the property market is good in the future, the project will still not be too expensive because the selling price is constrained,” he said. “But if the market atmosphere is not good, the project might be competing with the same type of pre-owned homes with discounted prices, or the HOS market.

“Some developers will have made their calculations and decided they might as well invest in other plots of land that do not have so many constraints.”

Analysts had previously estimated the value of the Yau Kom Tau site at between HK2.1 billion (US$270 million) and HK$4.22 billion. Midland Surveyors valued it at HK$2.83 billion, or HK$2,700 per sq ft.

Owners of starter homes are only allowed to sell or let their units in the open market after five years and must pay a premium to the government to remove the restrictions.

Hong Kong’s developers have been struggling against rising interest rates, an economic slowdown, and the highest inventory in years.

The number of unsold units in completed projects is the highest since 2007, according to JLL, which said earlier this month that a total of 83,000 housing units are available, with 18,000 in completed projects and the rest under construction. About 25,000 more units are expected to hit the market in 2023.