25 June 2019
Quarry Bay has emerged as a new high-end business center in eastern Hong Kong Island. Photo: Bloomberg
Quarry Bay has emerged as a new high-end business center in eastern Hong Kong Island. Photo: Bloomberg

Commercial property rise to further shrink land supply

Hong Kong may face less land supply for residential property as more developers snap up old apartment buildings and transform them into commercial property.

Henderson Land Development (00012.HK), a leading local property developer, has recently spent HK$170 million (US$21.9 million) in acquiring old flats at 852 and 854 King’s Road in Quarry Bay. It’s the company’s fourth deal involving old buildings this year.

Henderson intends to redevelop the area and build a commercial complex. In June it bought a 54-year-old apartment building nearby for HK$850 million, which it also plans to turn into a commercial complex.

Also in June, New World Development (00017.HK) shelled out HK$420 million for an old apartment building on Nation Street, also in Quarry Bay, and planned to turn the site into commercial property.

Tai Hung Fai Enterprise, a privately held developer, spent HK$660 million in July to buy an old apartment complex at 999 King’s Road, with the intention of building a complex for shops, offices and a hotel on the site.

It’s quite clear that the residential property supply in the area is set to decrease.

The developers’ moves aim to tap into rising demand for commercial property, as the area has already emerged as a new high-end business center in eastern Hong Kong Island. Swire Properties (00019.HK) has been operating a number of A-level commercial properties centered around Taikoo Place in the area since 1990.

It should also be noted that the government imposes a plot ratio cap of 8 to 10 times for residential land, while the limits for commercial land can reach 15 times. Therefore, the floor area can easily be expanded by 50 percent if developers transform residential land for commercial use. The deal looks profitable even if they may need to pay extra premium.

These examples show that Hong Kong lacks not only residential land but almost all kinds of land including those for office, hotel, schools, hospitals and recreation facilities. We now witness an intensifying fight for land among different types of properties.

Although it makes good business sense for developers to turn residential land into commercial complex, that could exacerbate the shortage of land supply for housing. And that could worsen the situation for first-time home buyers and fuel residential price rally.

This article appeared in the Tuesday edition of the Hong Kong Economic Journal.

Translation by Julie Zhu.

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Hong Kong Economic Journal columnist

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