Two recent property-related developments in East Kowloon have caught public attention, namely an urban renewal project in Kwun Tong, and a government tender won by a state-backed Chinese developer at a record price in Kai Tak.
While many are expecting home prices to drop by 10 to 50 percent from their peak, the two cases suggest there’s very limited chance for that to happen, Hong Kong Economic Journal’s column EJ tactics argues.
The Kwun Tong project in Kwun Tong involves a five-hectare area that will be divided into five zones for development in three phases. The section currently soliciting developers will be used to build four high-rise residential complexes, providing 1,700 homes.
The Urban Renewal Authority has indicated the area will be developed into a complex similar to Taikoo Shing with the upmarket apartments expected to fetch HK$13,000 (US$1,675) per square foot, meaning a flat measuring 600 square feet will cost about HK$7.8 million.
We’re talking here about a project located right next to a neighborhood with mostly low-income households, as opposed to a middle-class estate like Taikoo Shing.
The land parcel in Kai Tak, meanwhile, is estimated by some surveyors to cost at least HK$15,000 per square foot to future homebuyers, that is, after adding the land cost of HK$6,530 per square foot, roughly HK$4,000 of unit construction cost, and financing expenses.
The site was won by Poly Property Group Co. Ltd. (00119.HK) for HK$3.92 billion, translating into a unit price 20 percent above that of a nearby site acquired by China Overseas Land and Investment Ltd. (00688.HK). A 600 square foot unit here will fetch at least HK$9 million, surveyors estimate.
For the masses, these unaffordable residential projects cannot be considered as real home supply. With the costs of these future projects so high, how can one expect a downward adjustment in the city’s home prices?
As residential costs soar beyond the reach of the working class, the Hong Kong government tries to rein in home prices by imposing tough curbs on both developers and buyers. However, the administration stubbornly clings to its high land price policy. In such a situation, seeking to bring down the cost of housing is wishing for the impossible.
The Hong Kong property market is caught in a deadlock, says the columnist.
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