Hong Kong property tycoon Cheng Yu-tung has stunned the market by securing a development site in Guangzhou's new financial district at almost 80 per cent below the price some analysts expected it to fetch earlier this year.
The chairman of Hong Kong-listed New World Development was the sole bidder at yesterday's auction through his privately run Chow Tai Fook Enterprises, and the site was handed to him at minimum asking price of 1.06 billion yuan (HK$1.21 billion).
The 26,494 square metre site in Guangzhou's Zhujiang New Town financial centre had been earmarked under the tender for the development of a 103-storey, 440-metre tower complex that would make it the tallest building in the provincial capital.
When completed - at a projected construction cost of at least 3 billion yuan - East Tower will provide 350,000 square metres of gross floor area above ground and an underground commercial space of 18,000 square metres.
After Chow Tai Fook disclosed its bid, no other bidders present responded. Analysts said the disappointing result for the municipal government, which was selling the site, showed the credit concerns of developers were worse than many feared.
'Mainland developers are cash-strapped as banks have tightened lending on property. They wanted to bid but they do not have money,' said Huang Tao, project manager at property agent Centaline (China) Guangzhou branch.
He said the winning bidder would need to spend about another 3 billion yuan to build the project in the coming years.
Based on the built-up area of the development, the transacted price represents an accommodation value of 2,860 yuan per square metre, which is about 80 per cent lower than analysts had forecast early this year and 40 per cent below their latest adjusted prediction.
'The selling price is extremely low. I had adjusted the forecast to 5,000 yuan taking into account the current slow market environment. But I had never expected the price would be so low - and there was only one bidder,' Mr Huang said.
The site for the East Tower development is the most eye-catching auction in the city this year because of the investment cost and its scale.
It will be one of two mega-tower projects planned for the site.
The other (West Tower) is being built by Guangzhou Investment, the listed arm of the city government.
In June, Guangzhou Investment said it was keen to bid for the site.
But Wang Hongtao, general manager at Guangzhou Investment's property unit Guangzhou City Construction and Development, said yesterday: 'We did not join the bidding.'
He said this was partly because of the tightening credit environment.
'The investment risk will be higher if we own two sizeable office projects at the same time.'