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Public still to see profit from Cyberport

The $1.67 billion profit payout from the Cyberport residential development into the public coffers is being portrayed as a surprise windfall for taxpayers and a boon for our deficit-spending government. The truth is that it is only the beginning of the process of recouping land revenue that Hong Kong missed out on because the project was not put out to public tender.

The distribution of the first dividends from the project provides a good time to reflect on the opportunity cost of the project, if only to remind ourselves not to repeat the mistake.

It might be difficult to remember now, but when the project was first announced five years ago, the emphasis was on the high-technology element. That was the primary reason why the government insisted the proposal from Richard Li Tzar-kai's PCCW was the best one for the site - and the primary reason an alternative plan put forward by 10 of the city's largest developers was brushed aside.

A campus-style environment providing high-speed telecommunications and a Silicon-Valley-like buzz would draw technology companies from all over the world and jumpstart Hong Kong's ambitions. The anchor tenants would include PCCW and its technology partners, which at that point included Intel, the world's dominant chipmaker.

By comparison, the second proposal was bound to be ho-hum and unglamorous. The residential part of Cyberport would be put up for tender, with a minimum guarantee of $8 billion going to the government. The aim would be good old-fashioned property development. The irony is that this is precisely what Cyberport has turned out to be, with the hi-tech element playing at best a curious decorative role. The benefit to the taxpayer, meanwhile, still remains unknown.

The government valued its land contribution at $7.8 billion and agreed that PCCW would underwrite the construction costs of about $4.4 billion for its 35 per cent stake.

If the payout from the sale of more than half the project's flats has netted only $1.67 billion for the government, it is not clear that sales of the rest - even at today's higher valuations - will generate the $6 billion or so that would be needed before it can be said that the government and taxpayers have broken even.

In the meantime, PCCW has benefited from what has been, as some critics predicted, a low-risk, high-profit property development. The joint venture involves the residential side of Cyberport, while the government is left holding all the liability for the so far less profitable office, hotel and retail developments.

Office tenancy may well rise steadily above the current 41 per cent, but the dream of a hi-tech development park is far off. For one thing, there are serious questions about whether the smaller startups the government is now courting can even afford to put their staff up at Cyberport, which is shaping up to be a luxury playground for Hong Kong's jet set.

Hong Kong's land policy remains one of limited supply and, as always, land sales remain a major source of income for the government. The result is higher housing costs and, essentially, a hidden tax on all of us who live here. In such an environment, land is not free and there is an opportunity cost attached to almost any use.

The government deviated from its usual caution over land transfers in the case of Cyberport. The return this week of some of the dollars that were removed from public pockets five years ago is not exactly something to celebrate. Instead, it should be a reminder of the high cost of departing from accepted standards.

Soon, the government will get down to negotiations with property developers over the West Kowloon cultural district, a prime waterfront site not unlike Cyberport.

The lessons of the Pokfulam project should be kept in mind as the government considers issues such as premiums, potential returns and public benefit.

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