Premium move put in fix by price slides

The government is stepping up the pace of development at Northern Metropolis, Kwu Tung North and new areas in Fan Ling North. To speed things up, it proposed last year lower premiums for land-use conversions in the latter two areas at standardized rates. However, complicating matters is the continued softening of property and land prices. That complication might not have been taken into account by the Development Bureau when it announced on June 30 that standard land-use conversion premiums would go down by up to 33 per cent.

It said the lowered rates reflect then market adjustments and the hope that such lower premiums could accelerate new projects. The Lands Department then came in with Practice Note No 3/2022A on the measures, according to which standard land-use conversion premiums in the two areas were reduced by more than 30 per cent.

The premiums for converting a site in Kwu Tung North to residential use is about HK$3,716 per square foot, a sharp drop of about 33.3 per cent from about HK$5,574 last March. Similarly, the latest price for Fan Ling North conversions was about HK$3,484, down about 31.8 per cent from about HK$5,110 last year.

However, in view of the continued slides in flat and land prices, the industry is advocating regular updates on premiums to speed up land transactions in the areas. The chairman of the Real Estate Developers Association of Hong Kong’s executive committee, Stewart Leung Chi-kin, said that in the past year, land and property prices have softened, and the sales of new projects are generally flat.

He added that the government’s move to adjust standard premiums downward in response to the situation in the market is but a usual practice. Premiums do not need to be calculated manually as there is a set price and mechanism that greatly accelerates the land-conversion process and helps to speed up development, he said.

The lowering of premiums for the two districts is reasonable, according to the managing director of Vincorn Consulting and Appraisal, Vincent Cheung.He suggested that given the current market conditions, the government should regularly update the system, maybe annually, so that the they would be more in line with the market conditions, which can speed up development and increase supply. The chief surveyor of CHFT Advisory and Appraisal, Alex Leung, said that property and land prices have both dropped in the past year, coupled with the slow pace of selling new projects and unattractive prices.

He believes that lower standard premiums can increase a project’s attractions and further accelerate the progress of developments. The government has received 18 applications for the “remaining phase” of land conversions in the two districts, of which seven have been accepted by the department for further processing, which is expected to supply about 9,000 units.

The Lands Department said it would notify the applicants individually, invite them to consider whether to pay the premium at the revised rates and remind them that the deadline for accepting land-use conversion terms will be extended to December 31. The lower premiums are to provide certainty in payments by announcing a set of standard prices in advance to speed up the conversion process and enable the early conversion to better meet the needs of the community and maximize land-use possibilities.

The traditional process of land premium negotiations often takes a certain amount of time due to differences in opinion between the applicant and the Lands Department on premiums, and the cases involved are challenging because both parties often have different views on the “pre-deed amendment value.” Separately, Asia Standard’s new project, High Park I, which is located in Hung Shui Kiu of the Northern Metropolis, has received 1,334 checks as of June 9. The first price list, launched on June 6, includes 26 one-bedroom units, 96 two-bedroom units, two three-bedroom units and one special unit, which offer sellable areas ranging from 326 to 498 sq ft.

After discounts, the prices of the units start from HK$4.492 million, with a minimum price of about HK$12,688 per sq ft.It is estimated that 70 per cent of the units are for self-occupation. Based on the first price list of 125 units, it is oversubscribed by 9.6 times.