Wharf Holdings announced this week that the government had given approval for it to rent Ocean Terminal for another 21 years and that it needs to pay a land premium of HK$7.9billion.
Based on Wharf's development plan to build a four-storey new wing, the current gross floor area of 658,000 square feet will be increased to 920,000 sq ft - an additional 40per cent of floor space. If we take these figures, and construction costs estimated at around HK$1billion, the new lease would work out roughly to be about HK$35 per sq ft per month.
The rental prices at Ocean Terminal have been lower than those in the adjacent Harbour City mall. After the lease renewal, Wharf will certainly push the rent up, to be on a par with others in the area. The average retail rent in Harbour City is about HK$264 per sq ft per month. So, if the lease renewal is not government-business collusion, what is it?
In fact, the average commercial rent in Canton Road, the commercial hub of Tsim Sha Tsui, is a lot higher than that. Shop rentals have hit record highs and rents go well over HK$1,000 per sq ft. Based on these figures, the average for Ocean Terminal should be at least HK$400 per sq ft.
Even if we base our calculations on the revised gross floor area provided by Secretary for Development Carrie Lam Cheng Yuet-ngor, the land premium charged is still grossly below market rate. Lam said only 60 per cent of the 920,000 sq ft will be rentable commercial space. That means the land premium should have been about HK$15billion - double what Wharf will be paying.
The government has definitely sold our public property cheaply.
Most obviously, Wharf was treated favourably as it didn't have to go through a competitive process such as a public tender before being allowed to renew the lease. The entire process was unfair and opaque. The government owes the public an explanation.
This case is a reminder of the listing of The Link Reit by the Housing Authority in 2005, when public properties were sold below market prices.
In dealing with similar situations, the government should utilise the effective 'build, operate, transfer' model. During the colonial era, this development model provided a return on investment of up to 18per cent, in order to attract investors. After the handover, the return on investment fell to around 10 per cent. Given that the lease extension for Ocean Terminal is only 21 years, the government could raise the return on investment to 12 per cent to boost investment incentive.
Wharf has already paid some of the land premium and the deal will be finalised soon. The public should speak up now because this 'handout' to Wharf is more than the amount the government needs to run the Community Care Fund. If money is wasted this way, it's not difficult to understand why we are plagued by a worsening wealth gap.
It's most ridiculous to hear Lam say that there were no special considerations in this case and it was a common practice not to open the deal to a public tender. We should not allow her to pull the wool over our eyes, or the next administration must take responsibility and deal with the issue properly.
Albert Cheng King-hon is a political commentator. firstname.lastname@example.org