15% of private residential stock are expected to be the acquisition target of developers.
The applications for an order for compulsory sale under Hong Kong’s Land (Compulsory Sale for Redevelopment) Ordinance have increased by 80% yoy in the year-to-date till August, according to JLL’s Residential Sales Market Monitor.
Earlier in August, the Lands Tribunal has received its ninth applications of the year for an order for the compulsory sale of the remaining undivided shares of a property under the Ordinance, compared to 5 applications a year ago. It is on track to exceed the 11 applications recorded for the full year in 2016 by the end of the year.
Aside from local heavyweights like Henderson Land, the market has seen growing interest in site amalgamation among small-to-medium developers. Recently, Hip Shing Hong applied for a compulsory sale order of 5A-5D Victory Avenue in Homantin while Easyknit Group successfully acquired 11-13 Matheson Street in Causeway Bay for HKD 441 million or HKD16,000 per sq ft via a compulsory sale auction.
Henry Mok, Regional Director of Capital Market at JLL, said: “Despite the lengthy process of acquiring sufficient units to meet the 80% ownership threshold for triggering a compulsory sale order and hefty upfront stamp duty costs, more local developers may turn to amalgamating buildings for redevelopment due to increased competition in the government land sale market and the scarcity of greenfield sites in prime urban locations.”
Ingrid Cheh, Associate Director of Research at JLL, said: “With about 15% of private residential stock being built before 1970, more redevelopment and gentrification opportunities are expected to arise, though developers would need to factor in hefty acquisition costs, with market prices now at record high levels. Those with a more optimistic outlook of the market will find it easier to justify a higher achievable sales price at the future completed development.”
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