Higher deposit for land sales will add pressure on small firms, tightening the big developers' grip on Hong Kong's land supply

By Sandy Li sandy.li@scmp.com / https://www.scmp.com/business/article/3022575/higher-deposit-land-sales-will-add-pressure-small-firms-tightening-big?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | August 21, 2019 5:49 PM SGT
The recent move by Hong Kong's government to double the deposit for land tender sales, raised to deter defaults, will add to the financing pressure on small developers and put them at a disadvantage when they buy land in the world's most expensive property market, analysts said.
A HK$50 million (US$6.4 million) deposit now applies on all land parcels that are valued at over HK$400 million, while plots assessed at between HK$200 million and less than HK$300 million requires a non-refundable deposit of HK$30 million, the Lands Department said last week.
The tiered fee structure " a change from the flat, non-refundable deposit of HK$25 million for all land parcels irrespective of their valuations " followed a high-profile default in June when a developer reneged on its contract after winning a land tender at the former Kai Tak airport.
Goldin Financial Holdings walked away from the Kai Tak site that it had won for HK$11.1 billion, as it would rather forfeit HK$25 million in deposit than commit to a long-term investment estimated at HK$18 billion, while the market sentiment took a turn for the worse amid a growing political controversy over an unpopular extradition bill.
"This will add pressure on them to secure the financing from banks, which tend to be less favourable to smaller developers who lack the credit track record or bargaining power of their larger competitors," said Hannah Jeong, head of valuation & advisory services at Colliers International Hong Kong.
The successful tenderer will also be required to make a part payment equal to 10 per cent of the winning bid minus the initial deposit within seven working days of being awarded the tender. The balance will have to paid within 28 days.
"The new measure may potentially impede some small developers, but the overall impact to the sector should be limited," said S&P Global Ratings director Matthew Chow, adding that HK$50 million of deposit is still "manageable," even for smaller developers. "The requirement of 10 per cent of the total selling price within seven days is a greater capital demand."
The capital...