Detailed analysis of income estimation of land sales in commercial reclamation
The recent dispute over the estimated revenue from the sale of land for commercial land reclamation in Chau Chau Chau helps the community to recognize the serious shortage of Grade A office buildings. 38 economists (including Wang Yuzeng and Song Enrong, etc.) issued a joint support for the “Tomorrow’s Days” project on November 6. It is said that the reclamation of the Chau Chau will provide 40 million square meters of commercial floors with a commercial land income of about 360 billion. yuan. Construction surveyor Yao Songyan published an article on November 7 (hereinafter referred to as Yao Wen) that the above estimate is exaggerated. His estimate is only 102.7 billion yuan. The estimate is based on the floor area of 11.41 million square feet (1.06 million square meters). The land price is 9000 yuan per floor. The former is derived from the shortage of the Hong Kong 2030+ for Grade A office buildings in the core business district to 2041, and the latter is the floor price for the above economists.
Yao Wen said that economists did not apply the marginal theory of economics to analyze land sales revenue. This article first examines Yao Wen’s statement about the relative supply of office buildings obtained from reclamation, and then looks at the size of the government plan and the time to respond to the demand, and then analyzes some of Yao Wen’s arguments.
Yao Wen pointed out that the total area of Grade A office buildings in Jiaozhou Island artificial island exceeded 50% of the current total Grade A office space. There are two misunderstandings that make it significantly overestimate the proportion. First, the internal floor area (IFA) is lower than the relevant buildings. The reality of the area, in addition, the government’s planned commercial floor is not all Grade A office buildings, including shopping malls and hotels. Yao Wen quoted the Rating and Valuation Department as saying that the total area of Grade A office buildings in 2017 was 7.6 million square meters (this is the internal floor area). The article notes the inside area (as the internal floor area) and the construction area. Up to 30% or more respectively. Assuming a planned commercial floor of 4 million square meters, eight become Grade A office buildings, and the internal floor area is 75% of the building area. The above ratio is only about 32%, not more than 50%!
The government’s plan is to prepare for the future of Hong Kong. The “Hong Kong 2030+” consultation document pointed out that there is a continuous shortage of Grade A office buildings in the core business district, with a short-term (to 2023) of 480,000 square meters, and a medium-term (to 2033) down to 310,000 square meters, but long-term (referring to 2041) ) will rise back to 1.06 million square meters. At present, the Government’s plan, in addition to coping with the shortage to 2041 (only 23 years ago), is also preparing for longer-term demand, and the vision of building a land reserve is expected to come true.
Yao Wen put forward the idea of ”promoting office buildings to be cored,” but the article did not explain how to promote it. The consideration is that the overall office building and general commercial floor will be over-recognized in 2041. The surplus of Grade A office buildings and general commercial buildings in the non-core area will total 4.81 million square meters (1.26 million and 3.55 million respectively). There is no need to increase supply. . The “Hong Kong 2030+” consultation document indicates that different uses may not be completely replaced by other uses; non-core area Grade A office buildings and general commercial floor surpluses have appeared in the short term (until 2023), totaling 1.97 million square meters. The Government has made two major initiatives to provide more commercial floor space in Hong Kong, including the revitalisation of the industrial building and the large-scale commercial planning of the new development area of the Hung Shui Kiu in the New Territories. However, the effect still needs to be seen for a long time. In addition, the development of Grade A office buildings is becoming more and more high quality, large area and high floor. Generally, commercial trade floors are difficult to replace.
Yao Wen also cited the example of a total land revenue of only 1080 billion yuan in the context of a supply increase of 40 million cubic meters. This disregards the current situation of insufficient land, and does not understand the difficulty of the extremely low vacancy rate in the office market. The calculation method is to multiply 2,700 yuan per square meter of 40 million square meters (assuming the above-mentioned land price of 9,000 yuan is down by 70%); the article also suggests that when oversupply, even if the price is reduced, it may not be able to sell. The assumption of the floor price of 2,700 yuan is obviously not taken into account. The land price of the factory in Tsuen Wan and Fanling has exceeded 3,500 yuan. The land price of the factory in the urban area is higher, and the shortage of industrial floor is estimated to be 2041. Will reach 5.09 million square meters!
In September, Jones Lang LaSalle published a research report titled “Land Supply – Don’t Forget Office Buildings”. The supply of Grade A office space in Hong Kong has continued to be tight in the past 20 years. The vacancy rate in the Central Business District is currently only 1.5%. continuously rising. Hong Kong office rents are now the highest in the Asia Pacific region, and the lack of supply options has a deterrent effect on Hong Kong’s overall competitiveness. The government must work harder to provide office land supply to alleviate the lack of supply.