Hong Kong Property Market Enters A Great Stagnation

Hong Kong’s property market has long been a major source of wealth. The city’s billionaire ranks are dominated by developers who got rich by acquiring sizable land banks that allowed them to manage land costs and boost profit margins. But recently, a tussle over valuations between those developers and the government, which is the largest seller of land, has resulted in a stalemate that dampens the city’s economic prospects.

At the apex of the market sits the Hong Kong government, which owns all the city’s land and, in the past, has relied on the sale of land leases for more than 50% of its revenue. It is having difficulty finding takers for the 18 parcels of land it earmarked for sale this year. The MTR Corp, which is a major landlord in addition to operating the city’s extensive rail network, received no bidders for its latest land development project near the airport, the first time this has happened in ten years.

The deals that have taken place were at bargain rates. “This lackluster showing provides yet another chastening indicator of how far Hong Kong’s investment market has fallen from its heights four or five years ago,” said Benjamin Chow, head of Asia real assets research at MSCI, whose team tracks acquisitions around the region. “The aborted tenders also illustrate the widening chasm in pricing expectations between buyers and sellers, which has plagued not just traditional commercial sectors like offices and retail, but also the land sales market as well.”

Meanwhile, land lease sales, offered by both government and private players, have fallen to their lowest levels since 2009, according to MSCI. In the government’s case, Chow said, it is not just due to the developers’ lack of appetite to bid,

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