Tender sites sell below average prices amidst property market woes: JLL

Bidders have turned conservative as mass housing prices fall.

The property market’s woes have bled into bidding interest for government tender sites, with all tendered sites this year selling just within or below market expectations, according to JLL’s Hong Kong Residential Sales Market monitor.

JLL expects the developers will remain conservative in land bidding over the short term. 

With the weak sentiment in the land market expected to linger, the government should look into adjusting its reserve prices accordingly or risk more unsuccessful tenders, warned Norry Lee, senior director of projects strategy and consultancy department at JLL.

“The several land sales this year achieved below or near the lower end of market expectations suggested that developers had turned more cautious in land bidding,” Lee noted in the report.

In July, the Land Department awarded the residential site on Hospital Road in Sai Yung Pun to K. Wah for HK$551m. The price, which equates to HK$12,821 psf, is 1.3% below the lower end of market expectations.

Another deal saw the Far East Consortium win URA’s Sung Hing Lane / Kwai Heung  Street Development Project in Sai Ying Pun at an accommodation value of HK$13,085 psf, also below market expectations.

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Whilst tender sites are still being snatched up by developers, the deal prices have failed to meet expectations compared to in 2017, when the housing market was still on the uphill, resulting in developers being more aggressive in their land bidding. 

JLL noted that one of the reasons that led to the softening sentiment in the land market was that mass housing prices are also falling. Prices fell 4.4% in July compared to the same month in 2021, according to JLL Mass Residential Index. This is driving developers to tag higher risk premiums for developments. 

Dampening buyer sentiment and the increasing number of new developments launching is also pushing developers to adopt competitive pricing strategies. 

“Without room to factor in higher future sale  prices, the residual scope for land prices also compresses,” said Lee.

The market for bidders have also shrunk with Mainland Chinese developers having turned quiet in Hong Kong over the recent years, said Nelson Wong, executive director of research at JLL Hong Kong. 

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Construction costs have also risen considerably alongside inflation in  materials, negatively affecting demand to bid for new land. Construction costs have recorded a leap of 10.8% in 2021, according to data from the The Civil Engineering Works Index by Civil Engineering and Development Department. Costs rose by another 4.3% in May from end-2021.

“Land bidders will have to reduce land costs to maintain the desired profit margin,” Wong noted.