Commercial & Industrial Property News Update

Hong Kong - Li Ka-shing Firm Wins Mixed-use Site For HKD 9.6 billion

August 14, 2012

The land deal with subway operator MTR Corp is the largest of its kind in Hong Kong in over a year.

Cheung Kong (Holdings), a firm owned Li Ka-shing, the richest man in Asia, has acquired a plot of land from MTR Corp for the development of a mixed commercial-cum-residential complex. Valued at HKD 9.6 billion, the transaction is the largest such deal in over a year.

Cheung Kong said last week that it has won the rights to the space above Tsuen Wan West station, which is a former market town in the New Territories region that had been absorbed by the city.

Simon Lo, executive director of research and advisory at Colliers International said, "The site is huge. I don't think there are a lot of developers that have the appetite or the resources to snap up a site like this."

The transaction is notable for being the most costly deal since June 2011, when a site on the slopes of the prestigious Victoria Peak was acquired for HKD 11.65 billion, also by Cheung Kong. The price of the Tsuen Wan West station site also far outstrips the HKD 6.9 billion paid up by Sun Hung Kai Properties in July for a waterfront site on Hong Kong island.

The tender site was withdrawn by MTR in January due to bidders failing to meet the reserve price. Developers have adopted a cautious attitude as Hong Kong land prices are among the highest in the world.

Victor Li, managing director and executive deputy chairman of Cheung Kong said that more than HKD 20 billion would be spent on the development of the project, with MTR privy to a fixed 5% profit-sharing deal on the back end of the development.

Li added that the bid price worked out to an average of HKD 4,308 per sq ft; construction costs will push the figure up to HKD 7,000 per sq ft. Earlier, market analysts had estimated the average site cost at between HKD 4,000 to HKD 4,500 per sq ft.

Li Ka-shing protested the high construction costs in the city during the company's earnings report last week, and forecast a rise of between 30% to 40% in the next four years. However, market analysts expect Hong Kong's new leader, Leung Chun-ying, to increase land supply, helping to bring down land prices.

"The developers are now putting in a risk premium," Li said. "They can't afford to offer an expensive bid for any site, because the potential land supply will be higher."

In winning the Tsuen Wan West site, Cheung Kong reportedly outbid Sun Hung Kai, Sino Land, Henderson Land and Nan Fund Group, as well as a consortium made up of Wheelock and Co, New World Development and Chinachem.

Known as Bayside, the site offers up to 1.8 million sq ft of residential floor space, along with up to 436,000 sq ft of commercial space.

Tags: Real estate investment, Business space, Income properties

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