Poor terms
The new lease for Ocean Terminal was signed this week. Before the old lease was up, the government announced last week that it would extend it for another 21 years and Wharf Holdings would need to pay a land premium of HK$7.9billion.
Furthermore, the company will need to pay an annual government rent of 3per cent of the rateable value of the Ocean Terminal lot. When the lease renewal was confirmed, Wharf immediately put down a deposit. It didn't want to waste any time, and the lease was finalised on Tuesday. The premium was valued well below the market price, which means it's a clear-cut case of transfer of benefits.
The current gross floor area of Ocean Terminal is 658,000 square feet. But after the lease extension, Wharf can build a four-storey new wing, increasing the floor area by 260,000 square feet on the existing short-term lease on government land and bringing the total floor area to about 920,000 square feet.
Faced with criticism, the Lands Department tried to wriggle its way out by saying that 40per cent of the land would not be rentable commercial space because it includes parking spaces and areas allotted for immigration and customs purposes and baggage facilities. But officials have misled the public, because these facilities have always existed and the area they occupy shouldn't come under the calculation of the premium.
Based on the estimate that Wharf will spend around HK$1billion to redevelop the area and build the new wing, the deal is still a huge bargain because the land premium works out to be HK$35 per square foot per month.
It's almost certain Wharf will raise shop rentals after the expansion, bringing them in line with market prices, to at least HK$300 per square foot, which would be almost 10 times the per-square-foot price it has paid for the premium. It's obvious this is a case of transfer of benefits. There's no way Secretary for Development Carrie Lam Cheng Yuet-ngor could talk her way out of this.
Even if we focus only on the additional floor area of 260,000 square feet, just rents alone at, say, HK$300 per square foot per month will bring in a total of just under HK$1billion a year for the next 21 years.
The government has always utilised the effective 'build, operate, transfer' model. Successful cases include the running of the Cross-Harbour Tunnel. The government recently announced that it would use the same model for the redevelopment of the west wing of the central government offices. So why did it change its usual practice and make an exception in the case of Ocean Terminal?
Furthermore, there is potential conflict of interest. It has been reported that legislator Paul Chan Mo-po is likely to be appointed deputy financial secretary in the next administration. Chan is a non-executive director of Wharf Holdings. No wonder the deal was sealed in such a hurry. The objective was to avoid embarrassment because they could say it was a matter between the outgoing administration and had nothing to do with Leung Chun-ying's government.
The whole thing should have been done in an open and fair manner. Lam owes us all an explanation. She shouldn't have one set of rules for the rich and powerful and another for the masses.
