Hong Kong housing supply in peril as land sales fail
The number of failed government tenders for the sale of residential sites in 2022 and 2023 has already surpassed the total of the previous seven years.
The Northern Metropolis is a flagship megaproject to develop Hong Kong's northern New Territories. In the Northern Metropolis (NM) Action Agenda, the Hong Kong government outlined the details and schedules of housing supply and major infrastructure projects across the four major zones of the NM. There are plans to provide more than 3,000 hectares of new development land, yielding more than 500,000 new housing units. These land-creation initiatives are critical for the city's long-term growth. Developing more land could enhance Hong Kong's competitiveness, make housing more affordable and improve the living standards. At the same time, this could also enhance the government's flexibility in managing real estate supply.
However, the prevailing market conditions could present challenges to the long-term private housing land supply target. This is evident from the failed government tenders for the sale of two residential development sites in Tung Chung. To be specific, Area 106B and Package 1 of Tung Chung East Station were originally expected to yield 1,614 units in total. We anticipate more residential land sales to be withdrawn if the reserve price set for each sale site does not align with market reality.
Meanwhile, recent bid prices for residential sites could indicate the achievable accommodation value (AV) range for future land supply in the NM. Tung Chung and the Northern Metropolis both adopted infrastructure-led planning. That said, residential sites in Tung Chung did not gain sufficient appeal despite having larger railway capacities for potential population growth than some of the proposed development areas in the NM.
With the number of failed government tenders for the sale of residential sites in 2022 and 2023 surpassing the total of the previous seven years, there are doubts as to when the land market will be robust enough to ensure steady land disposals and transactions. This becomes more evident after the relaxation of the government's cooling measures has failed to boost sentiment in the property market. Secondary home prices have continued to fall and total residential transaction volume was a mere 43,002 units in 2023, and below 45,050 units in 2022. Similarly, the primary market has not seen a resurgence of market activities as expected, and the number of unsold units of completed stock has risen to 18,300, the highest level since 2007.
It appears that the ongoing downward price trend is the result of both structural changes and cyclical market fluctuations, and rebuilding market sentiment will take time even after the rate hike cycle. Contrary to what many hope for, recent policy initiatives such as schemes to import talent inflow do not provide immediate remedy to the property market's challenges. Without a rapid expansion of job openings, the rate of talents' departure could match their arrival rate. Striking the right balance between protecting public revenue and ensuring land supply is challenging for policymakers, but short-term interests should not hinder the achievement of long-term targets. Land sale prices were inflated in a bullish market, leading to overpriced homes. In a bearish market, it is also crucial to ensure a steady supply. The reserve price for land sale should be set close to the current market value, and communication with the real estate industry is key. More planning certainty and incentives are necessary to rebuild developers' confidence.