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Friday, February 16, 2007

Hoping to ease the scarcity of urban land, property experts have suggested the government take an active role to encourage collective sales and redevelopment activity.

"Clarification of policy and prompt announcement of height restrictions in various residential districts will help dispel uncertainties and facilitate collective sales activity," said Alnwick Chan, executive director of Knight Frank.

The government plans to review restrictions in all districts and has begun to impose height limits on projects in Kowloon Tong and Wong Chuk Hang in Island South.

But the new restrictions have not been announced in all districts at the same time. Government departments, including the Buildings Department, Lands Department and Planning Department, have yet to reach a consensus on how the height of a building should be measured under some of the older leases.

Chan said a highly restrictive policy on the compulsory sale of properties has also slowed collective sales activity.

According to existing regulations, property owners have to own 90 percent or more before they can apply for the compulsory sale of the entire building. Such a threshold is prohibitively high. Though the government is considering lowering the threshold to 80 percent or less, a decision has yet to be made.

Centaline Surveyors agrees that the government should expedite legislation to lower the threshold under the ordinance for compulsory sale of properties as this will facilitate redevelopment and accelerate urban renewal.

According to Knight Frank, redevelopment activity through collective sales is on the increase due to the shortage of available prime residential sites. "We expect that the high level of land prices fueled by December's auction of a luxury site on The Peak will further stimulate collective sales activity, particularly in areas like the Mid-Levels, where older but well-located buildings have yet to fully utilize their plot ratios," Chan said.

A typical case is Grand Court at 18 Caine Road.

This 9,000-square-foot site has a plot ratio of eight, representing a maximum developable area of about 86,200 square feet, which is more than double the current gross floor area.

The majority owners of this 47-year- old residential property commissioned a consultancy firm to handle the tender sale, which closed last month.

In December 2006, three more luxury residential properties were acquired by developers through collective sales, including New Eastern Terrace in North Point, Sun Fair Mansions in Mid- Levels East and Manly Court in Prince Edward in Kowloon.

Chan said the Lands Tribunal has recently granted an order for sale in respect of the 12 units at No6 Shiu Fai Terrace in Mid-Levels East.

The property has a total of 12 units of which 11 are currently owned by K Wah Real Estate.

It will be sold through a public auction in March with a reserve price of HK$284 million.

K Wah is hoping to amalgamate the ownerships at the auction to enable the redevelopment of this old building.

Despite the increasing popularity of redevelopment and collective sales activity, no major increase in new supply is likely in the short term as redevelopment takes at least two years and collective sales face many obstacles, Chan said.

In recent years, several developers have made use of the land ordinance. Kerry Properties (0683) completed a land purchase transaction for a HK$2 billion luxury housing project in Happy Valley by acquiring the site's remaining interests at October's auction, at the reserve price of HK$661 million.

In September, Hopewell Holdings (0054) completed a land purchase deal for a site at 12 Broadwood Road in Happy Valley which will be developed as a luxury residential rental property at a cost of about HK$500 million, or HK$4,500 psf.

In June, Kowloon Development (0034) completed a 13-year quest to purchase a North Point site for a HK$500 million housing project, which will provide a gross floor area of 60,800 sq ft.

In 2005, Swire Properties brought to an end a decade of land purchasing for a Mid-Levels residential project by acquiring the site's remaining interests at an auction.

Knight Frank's Chan said unclear policy in respect of height limits applied to properties has also created difficulties in assessing the redevelopment value of older buildings and impeded urban renewal.

Development restrictions in Ho Man Tin are also being studied by the government, sources said. The move follows the recent announcement of a lower plot ratio for a coveted residential site in the district available on the application list of land sales.

Developers would have less gross floor area to build if limits were to be imposed.

These include height restrictions and the plot ratio, which governs how many apartments can be built on a site.

Some developers are concerned about how their profit margins will be affected by a potential lessening in the value of their property development sites in the districts.

The Lands Department recently announced a plot ratio of five for a residential site at the junction of Fat Kwong Street and Chung Hau Street in Ho Man Tin, the single most valuable site available on the government's application list.

The lower-than-expected plot ratio may reduce the value of the site, 1.62 hectares in extent, by 30 percent to about HK$7 billion, surveyors said.

However, the attractiveness of two residential sites in Kowloon Tong available on the application list is unlikely to be affected by the new height restrictions, market watchers said.

Midland Surveyors director Alvin Lam Tze-pun expects the two sites - 1 Ede Road and 3 and 5 Ede Road - to be successfully taken off the application list for public auctions later this year after November's auction for another site in Kowloon Tong.

Sino Land (0083) won the coveted site at 1 Broadcast Drive for HK$1.94 billion, or HK$9,868 per square foot, beating forecasts of between HK$1.3 billion and HK$1.8 billion.

This was up 76.4 percent from the reserve price of HK$1.1 billion or HK$5,595 psf.

That price was expected to set a benchmark for the two Ede Road sites in Kowloon Tong available on the government's reserve list, Lam said.

Under the application list system, a developer has to submit a price for a site that is at least 80 percent of the government's own estimate to successfully trigger an auction.