Hong Kong Government suspends land sale amidst weak market demand

The Hong Kong Government announced that it will not sell any residential or commercial land in the first quarter of 2024. This decision came in response to the persistently weak market sentiment and rising vacancy rates in the Hong Kong region, one of the world's most expensive property markets. This marked the first time in recent history that Hong Kong refrained from rolling out any residential sites for sale during a quarterly sale.

Last month, the government sold a rural residential site to a sole bidder at the lower end of price expectations. Additionally, six residential and commercial land auctions in 2023 failed to generate interest, setting a new record. In November, official data showed a seventh consecutive monthly decline in private home prices, reaching their lowest levels since February 2017. Analysts believe that because of the weak buying mentality and rising interest rates, the downward trend will continue in the first half of 2024.

Secretary for Development Bernadette Linn expressed that the decision to withhold residential sites for sale in the fourth quarter is a direct response to the weak market sentiment. However, Linn assured that the land supply from various sources in the current financial year would still accommodate the construction of 11,530 apartments, very close to the government's target of 12,900.

Regarding commercial land, Linn pointed out the high vacancy rates and soft demand that the government needs to consider. She further mentioned that the completion of several large commercial buildings in the coming years will contribute to an increase in supply.

Real estate consultancy firm CBRE reported that the vacancy rates in Grade A offices soared to an all-time high of 16.4% in 2023, causing rental prices to decline by 6% over the year. The total value of commercial property investment deals worth over HK$77 million each also halved in 2023, reaching a 15-year low of HK$40 billion ($5.12 billion). CBRE attributed this decline to high financing costs, banks' reluctance to lend, and economic uncertainties.

Jonathan Chau, executive director of CBRE Hong Kong, expressed optimism, stating that anticipated rate cuts are likely to improve business and investment market sentiment, leading to a recovery in deal flow in 2024.

While the housing market continues to struggle, with home prices reaching a seven-year low in November, experts argue that the lack of tenders may not have an immediate impact on supply, given the 20,000 unsold units still available. However, a prolonged shortage of tenders could potentially impact land supply and government revenue. Developers remain cautious in light of the 14-year high in interest rates, resulting in a significant drop in transaction volume for the year.

The Hong Kong government's noteworthy decision reflects the complex dynamics and adjustments required in response to the current market conditions.

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Hong Kong Government suspends land sale amidst weak market demand

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