Hong Kong property: land parcel for starter homes in Tsuen Wan likely to draw few bids as high interest rates subdue market

The site earmarked for almost 2,000 starter homes for middle-class Hong Kong families is likely to draw only a handful of low bids, say analysts
The ‘market situation is no good … due to the interest rate,’ says James Cheung of Centaline Surveyors, who expects as few as four bids for the plot

Hong Kong property

Lam Ka-sing

Published: 8:05pm, 23 Jun 2023

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A plot of land in the western New Territories earmarked for almost 2,000 starter homes for middle-class Hong Kong families is expected to draw only a handful of low bids as high interest rates subdue market sentiment and the scale of the project deters developers.

The parcel at Yau Kom Tau, Tsuen Wan, went on sale by public tender on Friday, according to a statement from the Housing Bureau. The tender, which will close on August 18, requires all of the flats to be offered as starter units priced at 80 per cent of market value.

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

Analysts estimate the value of the 1.05 million square-foot site at between HK2.1 billion (US$270 million) and HK$4.22 billion.

High interest rates and the likelihood of further hikes, against the backdrop of a slowing external economy, are denting sales of homes as well as land, said Alex Leung, senior director at CHFT Advisory and Appraisal.

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“I guess there will be some three to five bids only,” said Leung, adding that the size of the project would also be a deterrent.

The winning bidder should provide no fewer than 1,940 flats with a minimum size of 280 square feet. At least 70 per cent of them must be no smaller than 375 square feet.

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

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.

Buyers of such homes are often looking for an investment, Leung said. They may be supported financially by their families and may therefore be tempted by private developments that offer larger potential capital gains.

A plot of land in the western New Territories earmarked for almost 2,000 starter homes for middle-class Hong Kong families is expected to draw only a handful of low bids as high interest rates and a high housing inventory subdue market sentiment. Photo: Handout

In particular, there is a plentiful supply of flats in the western part of Tsuen Wan and along Castle Peak Road in Tuen Mun, Leung said. He said the potential for capital gains is not as good as it is in more convenient areas.

He estimated the value of the parcel under tender to be HK$2.1 billion to HK$2.3 billion.

“I’m expecting the average value to be HK$2,000 to HK$2,200 per square foot, lower than [the estimates of] other surveyors,” said Leung.

Last week, Eddie Yue Wai-man, the CEO of the Hong Kong Monetary Authority, warned that the cycle of rising interest rates was far from over even after it paused following 10 increases since March 2022.

Bank of East Asia on Tuesday said it expected lenders to raise their prime rates by 25 basis points next month as the Hong Kong interbank offered rate (Hibor) – a measure of the interest banks charge each other to borrow money – rose to 5.1 per cent, the highest level since 2007.

The “current market situation is no good, very quiet in transactions due to the interest rate,” said James Cheung, executive director at Centaline Surveyors, who expected four to six interesting parties in the Yau Kom Tau site.

Cheung slashed his valuation for the project by 11 per cent from HK$4,500 per square foot in February to HK$4,000 per square foot. That translates to a valuation of HK$4.22 billion for the whole plot.

“The site is not that attractive, but the total amount is also not big. Thus even small-scale developers can bid,” said Cheung. “Nevertheless, in view of the current market situation, I do not think it can attract a lot of developers.”

Additional reporting by Julia Zhong

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