Twenty years ago, a plot of land in the very eastern part of Hong Kong was auctioned for a record HK$11.8 billion (US$1.52 billion). Bus route 118 was named after this. I know because I lived on the housing estate for almost nine years.
The record price paid by Sino Land, an aggressive developer owned by Singaporean-Hong Konger Robert Ng, was unmatched for 20 years. Until last Friday, that is, when two mid-sized developers from the mainland broke the record with an auspicious HK$16.8 billion bid.
Logan Property from Shenzhen and KWG Property from Guangzhou paid an average of HK$22,118 per square foot for the plot land in Ap Lei Chau — “Duck tongue continent” — on Hong Kong’s sought-after south side. Even though the site itself is a decommissioned driving license center and surrounded by industrial and commercial buildings, the bidding beat market estimates.
Rich prices at Hong Kong land auctions are no longer surprising, as many mainland property developers have crossed the border to bid up land in the city. The trend is exemplified by the aggressive giant Hainan Group’s HK$20 billion for three plots at Kai Tak, the former airport.
But what is surprising is the continued influx of small to medium-sized developers paying sky-high prices over the past six months in anticipation of a falling yuan and tighter control of capital outflows.
The land price fell between the market capitalization of Logan (HK$18.4 billion) and KWG (HK$15.6 billion), and followed a similar aggressive push by another small player, Minmetals Land, six months ago.
The difference in 20 years is in the price. Sino Land paid HK$4,000 per sqft for its parcel of land, only a small fraction of the going price nowadays that regularly tops HK$20,000 per sqft.
Does that mean the overheating property market is due for a break?
Well, the Hong Kong property market tumbled for seven years following Sino Land’s record tender and stayed flat for almost seven years before the current run. (Seven is not a lucky number for the Chinese, as seen in the 1987 Black Monday Wall Street crash, 1997’s Asian financial crisis, and Chinese stock fever of 2007.)
Shih Wing-ching, who owns the largest property agency Centanet in Hong Kong, changed his bearish views and now predicts there will be another 20% upside in residential property prices after his firm’s widely watched Centa-City Leading Index hit a record high.
But the market seems too crowded for tycoon Li Ka-shing. His flagship property went for diversification and globalization, buying an aircraft leasing business from sister company CKH Holdings. Li is also in the process of taking control of Australian energy firm Duet in a US$5.5 billion deal last month.
On its website, Cheung Kong Property said its principal business operations faced significant competition across the markets in which they operate because new market entrants and intensified price competition could adversely affect the Group’s businesses, financial condition, results of operations or growth prospects.
In other words, the last pot of money is left for the aggressive players, who fancy, just like Mr Li in the 80s and 90s, to make another miracle in Hong Kong.