More mainland Chinese developers will return to the Hong Kong land market as it becomes easier to outbid their local rivals who are holding back amid the city's gloomy economic outlook, say industry experts.
They have already won three government tenders for sites in the current financial year, without having to fork out the eye-watering sums they became known for a few years ago.
Kaiser Group Holdings, Citic Pacific and a joint venture between China Resources Land and Poly Property secured three residential plots in Tuen Mun, Tai Hang and Kai Tak, the site of the city's former international airport, for a total of HK$19.6 billion (US$2.52 billion). That accounted for 18 per cent of the HK$110.07 billion generated by land revenue between April 1 and January 12.
"They have been able to defeat local property giants, which have turned more cautious about the market outlook. This provides an opportunity for mainland firms to win in the government tenders," said Vincent Cheung, managing director of Vincorn Consulting and Appraisal.
Citi Pacific's HK$3.2 billion winning bid for a luxury residential site in Tai Hang, southeast of Causeway Bay, on December 18 was just 4.6 per cent higher than the next highest bid, according to the Lands Department. The government started to reveal all the unsuccessful bids anonymously to enhance transparency in March 2018.
Last summer, China Resources Land and Poly Property won a residential site in Kai Tak for HK$12.9 million, just 3.1 per cent above the second-placed bid of HK$12.5 billion. The latest trend is in stark contrast to 2016 when mainland builders paid jaw-dropping prices for government land, pushing prices to record highs.
In November of that year, HNA Group, once China's most aggressive overseas buyers, shocked the market when it won a residential site in Kai Tak for HK$8.84 billion, or HK$13,500 per square foot, a new record for the area. The winning bid was 120 per cent higher than the HK$6,101 per sq ft paid by Wheelock Properties in the previous land tender, in 2014.
HNA won another three residential plots in Kai Tak, raising its total investment to HK$27.2 billion in the Hong Kong land market in just four months.
A year later, the financially troubled conglomerate was forced to sell all four parcels to local builders Henderson Land Development and Wheelock for a total of HK$29.16 billion as it rushed to pay off debt. HNA made a profit of HK$1.96 billion before interest expenses from the four sales.
Chinese investment in Hong Kong's commercial property tumbled 251 per cent to HK$8.5 billion last year from 2018 after peaking at HK$35.7 billion in 2017, according to data from CBRE.
"The drop in overall investment volume, including by Chinese buyers, in 2019 is a combined result of mounting economic uncertainties, weakening demand (from homebuyers) and shaky rents across major commercial real estate sectors. Chinese capital was not only less active in Hong Kong, but also on a global basis, because of tightened capital controls and yuan depreciation," said CBRE.
Chinese developers are still actively bidding for land sold by Hong Kong government tender, said Reeves Yan, CBRE Hong Kong's executive director for capital markets.
"Mainland builders' usual business, like developing residential projects still receives support from central government," he said.
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