MTR's Tung Chung sale draws a tepid response as developers recoil at huge sum needed to build in inconvenient location

Asia's Tech News Daily

MTR’s Tung Chung sale draws a tepid response as developers recoil at huge sum needed to build in inconvenient location

A major sale of residential land in Hong Kong drew a tepid response from developers, as six of the seven companies that showed interest last month recoiled at the investments needed, in a possible shift in priorities amid the government’s plan to build a Northern Metropolis near the city’s border with Shenzhen.

A plot in Tung Chung on Lantau Island, where the city’s Disneyland resort and airport are located, received at least five bids, far fewer than the 35 expressions of interest, according to developers who responded to queries by South China Morning Post. MTR Corporation, the city’s subway operator and land owner, had not announced the number of bids as at 6pm.

The parcel, located atop MTR’s Tung Chung traction substation, has a gross floor area of 929,364 square feet (10,000 square metres), which can accommodate between 1,400 and 1,800 flats that require HK$11.3 billion (US$1.45 billion) to develop, surveyors said.

“The collective cold shoulder reflects the high investments needed, coupled with the site’s inconvenient location,” said Vincorn Consulting and Appraisal’s managing director Vincent Cheung, adding that unlike other plots located near MTR’s subway stations, the stop nearest to this parcel would not be completed until 2029.

MTR’s Tung Chung sale draws a tepid response as developers recoil at huge sum needed to build in inconvenient location

Hong Kong's railway network planned for 2031. Source: HKSAR Government. SCMP Graphics

The companies that did submit bids were the Who’s Who of Hong Kong’s property developers: CK Asset Holdings, Sun Hung Kai Properties, Henderson Land Development, Sino Land and the Chinachem Group.

Last month, MTR received expressions of interest from as many as 35 developers, including mainland China-based builders such as Vanke China, Kaisa Group Holdings and China Overseas Land & Investment.

MTR’s Tung Chung sale draws a tepid response as developers recoil at huge sum needed to build in inconvenient location

Existing and proposed land reclamation projects around Lantau Island. SCMP Graphics

A lot changed in a month. China’s developers, among the world’s most indebted because of their borrow-to-build business model, had been caught in a tightening credit squeeze, as 2021 looks to be another record year of bond defaults.

Last month, as many as 206 land parcels were withdrawn from auctions all over China, as developers that ran afoul of the central bank’s “three red lines” of debt limits ran short on capital to replenish their land bank.

“Due to the heavy capital investment, only the biggest developers took part in the tender while medium-sized [companies] saved their bullets for other sites,” said Knight Frank’s Greater China head of research Martin Wong, who had expected the Tung Chung site to draw 10 bids.

The plot, which is about 10 minutes drive or a 20-minute walk to and from the existing Tung Chung subway station, could be worth between HK$5.6 billion and HK$7.3 billion, including a HK$4.8 billion land premium payable to the government.

The estimated value translates to HK$6,000 to HK$7,800 per square foot, Wong said. After adding the construction cost, the total investment on the site could go as high as HK$12,200 per sq ft, he said.

“Flats will need to sell for HK$18,000 per sq ft to factor in a reasonable profit,” said Vincon’s Cheung.

That far exceeds what is currently on the market in the neighbourhood. The average price at the Caribbean Coast, a 19-year-old residential complex by CK Assets next to the MTR traction substation, was at HK$12,400 per sq ft , according to Midland Realty.

MTR’s Tung Chung sale draws a tepid response as developers recoil at huge sum needed to build in inconvenient location

An aerial view of CK Asset Holding’s Caribbean Coast property development in Tung Chung on 22 June 2010. Photo: EPA

Some developers may also be diverting their attention and resources to the New Territories, where Hong Kong’s Chief Executive Carrie Lam Cheng Yuet-ngor announced the plan to build a Northern Metropolis that could accommodate 2.5 million residents within 20 years.

“The potential growth will be greater there,” Wong said.

In a sign of things to come, Sun Hung Kai Properties (SHKP) paid a record HK$8.61 billion in April for a land parcel in Kwu Tung in the New Territories that could yield 1.2 million sq ft of gross floor area. The developer said it would invest a total of HK$18 billion on the project, inclusive of the land cost.

Not to be outdone, CK Asset this week released the first 88 units at its #Lyos housing project in Hung Shui Kiu in the western part of the New Territories, close to southern China’s Shenzhen city. Apartments at the project range from 205 to 462 sq ft, with an average price of between HK$3.45 million and HK$7.5 million, or HK$13,623 to HK$18,840 per sq ft after a discount of as much as 13 per cent,

A 219 sq ft flat at #Lyos is being offered for HK$4.1 million, or HK$18,840 per sq ft, a record price in the area, where a new rail link is due to connect the neighbourhood with Shenzhen’s burgeoning Qianhai economic zone. The rail link is an extension of the planned HK$62 billion (US$8 billion) Northern Link to cater for the newly announced eightfold expansion of Qianhai.

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