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Hong Kong developers' acquisition of old buildings seen rising amid a drop in supply of urban residential plots

By Sandy Li

/ SCMP |

February 25, 2021 11:07 AM SGT

SINGAPORE (EDGEPROP) - "We see more small to medium-sized developers are opting to buy dilapidated residential properties for redevelopment as they can hardly compete with cashed-up big players in government tenders," said Alnwick Chan, executive director and head of valuation and professional services at Knight Frank.

It is difficult for small players to compete for land in urban areas sold by government tender and MTR Corp as these residential plots can cost over HK$10 billion (US$1.2 billion), which is out of their reach, he added.

The Lands Tribunal received a total of 35 compulsory sale applications in 2020, a slight drop from the 37 in 2019. Property consultants said that the fall in applications was because of the pandemic, which saw extended periods of work from home arrangements from the government as well as many companies.

Under the Land (Compulsory Sale for Redevelopment) Ordinance, developers can force a compulsory auction to buy the remaining stake in a building, if it is over 50 years old and they already own 80 per cent.

On March 1, a 59-year-old six-storey building at 93 to 95 Catchick Street, Kennedy Town, will be put on forced auction under the compulsory order, according to JLL, which has been appointed as the auctioneer for the property.

The property, majority owned by Hong Kong-listed developer Easyknit International, has 10 units and two ground floor shops. JLL said the reserve price of the property was HK$190 million.

Read more: Hong Kong falls off global real estate investors' radars even as they eye more assets in Asia-Pacific

In November, Far East Consortium International became the 100 per cent owner of a 65-year-old residential building at 287 and 289 Sai Yeung Choi Street, Mong Kok, through compulsory auction for HK$85 million. Far East had acquired 90 per cent of the building before the forced auction.

Land prices through government tenders have been trending upwards in the past few years before the Covid-19 outbreak, but the cost of land through compulsory auctions is much cheaper as developers steadily acquire stakes in it over a much longer period, said Dorothy Chow, senior director of valuation advisory services at JLL in Hong Kong.

She also said that the sites put up for sale by the government in recent years were mostly larger sites away from the city centre in areas like the New Territories.

"For development sites in urban areas, compulsory sale is a good source of land," she said.

Not everyone is convinced about the merits of compulsory sale as the acquisitions of decrepit buildings can be time consuming and negotiations could stall for a variety of reasons.

"Buying units from individual owners in old residential buildings is getting tough and it is increasingly difficult to narrow the price expectation gap," said Charles Chan, managing director of Savills' valuation and professional services.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

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