Cheung Kong (Holdings) has surprised the market by acquiring a residential site on the Tsuen Wan waterfront for HK$9.631 billion, substantially more than industry expectations.
This was the second time the MTR Corp put up the 'TW5 Bayside' site, located atop Tsuen Wan West train station, for tender. It was first released for bidding at the end of last year, but was withdrawn as the offers submitted by the three bidders were seen as too low.
Because of that poor response, surveyors lowered their expectations to HK$8.49 billion, or HK$3,788 per square foot.
Cheung Kong, however, made an offer of HK$4,308 per sq ft plus 5 per cent of the total net profit, outbidding five other suitors. Not only is the offer price higher than market expectations, it is 37 per cent more than the going rate for a nearby site without a sea view that the Chinachem Group bought earlier this year.
'There has been no change in the property market [compared with eight months ago]. The price comes as a surprise,' said Vincent Cheung Kiu-cho, national director of Greater China at Cushman & Wakefield.
'If they want to secure a 20 per cent profit margin, the selling price has to reach at least HK$9,100 per sq ft, which is 7 per cent higher than the average price of the flats with a sea view in the area. So Cheung Kong's bid reflects its confidence that property prices won't fall in three years', about the time necessary for development.
Eric Yuen Chi-fung, head of research at brokerage house GuocoCapital, was also at a loss to explain why Cheung Kong forked out so much for the site. 'Perhaps they are really optimistic about the market outlook or maybe they see earnings potential on the project that we didn't. But I don't think investors will think the price is attractive.'
Victor Li Tzar-kuoi, deputy chairman of Cheung Kong, said they were happy to have bagged the project as it was a rare waterfront site. 'Every flat could enjoy a sea view. That was a determining factor of the [land] price.'
Executive director Grace Woo Chia-ching said the development cost would be about HK$7,000 per sq ft, including the land price, interest rate and more than HK$2,000 per sq ft of construction costs. The total investment could cross HK$20 billion.
The 460,699 sq ft site can accommodate nine towers with a total residential floor area of 1.8 million sq ft and commercial floor area of 436,480 sq ft. It can yield up to 2,384 flats, of which more than half will be smaller than 538 sq ft.
Cheung Kong owns a nearby project with 1,720 flats that it will launch this year.
Li said the company would continue to explore more opportunities locally. 'We would definitely study the potential of investment opportunities in Hong Kong.'
Meanwhile, the Urban Renewal Authority invited 18 developers to bid for a commercial-residential project in Mong Kok's 'Sneaker Street'. The tender will close on September 12.
The 26,673 sq ft site, near the Macpherson Playground, is bounded by Sai Yee, Nelson and Fa Yuen streets.