Conservative Swire Properties finally crossed Boundary Street in Kowloon for the first time in March when it teamed up with CITIC Pacific to buy the Yau Yat Tsuen site. BARRY PORTER reports it plans another massive MTR crossroads development but won't find this as easy as Quarry Bay and Taikoo because of the limited amount of space available. SWIRE Properties is now looking to turn Kowloon Tong into the third corner of a golden triangle. The hong has already helped turn the MTR crossroads of Admiralty and Quarry Bay-Taikoo Shing into gold mines for its listed parent Swire Pacific through the creation of thriving commercial hubs. It now intends to give Kowloon Tong similar treatment, following its $2.85 billion purchase of a 22,384 square foot commercial development site with CITIC Pacific in March. Like Admiralty and Quarry Bay-Taikoo Shing, the site is strategically located at a busy rail interchange, bordering Kowloon Tong Mass Transit Railway and Kowloon-Canton Railway stations. Like those other sites, Swire Properties will build a giant high quality shopping mall to serve as the nucleus of its development in Yau Yat Tseun. Swire Properties is well aware that Kowloon Tong, along with Admiralty and Quarry Bay, are among the busiest of all Hongkong's MTR stations, providing a ready army of shoppers for its retail tenants. The land will also provide for a relatively small amount of office space. Swire Properties is also now actively looking for opportunities in the immediate surrounding vicinity to develop the area as a whole. It won't find this as easy as it has with its projects in Quarry Bay and Taikoo because of the limited amount of available redevelopment space nearby. However, managing director Keith Kerr believes there is some scope for embarking on complementary office or residential schemes. He also hopes the joint venture between Swire Properties and CITIC Pacific for a shopping mall will act as a magnet for other developers. This ploy worked a treat for Swire Properties development of Pacific Place on the former Victoria Barracks site above Admiralty MTR, which is widely regarded as exceptional. The recent completion of the giant Citibank Plaza office block nearby, for instance, has provided a new hoard of customers for Pacific Place retail tenants to exploit. Over the past 10 years, Swire Properties has transformed Taikoo Shing from a dying dockland into one of Hongkong's largest and most successful shopping and residential hubs, with the Cityplaza shopping complexes at its heart. Recurrent earnings from the office, retail and residential components of Pacific Place along with the flow of rental income from the recently completed Cityplaza Three and Four office towers in Taikoo, have helped Swire Properties contribute substantially higher profits to the Swire group. Swire Pacific's net profit soared by 43.5 per cent in 1992 to slightly more than $4.4 billion, thanks largely to the property arm of the group. It was investor confidence in Swire Pacific's property arm that did much to protect the group's share price during Cathay Pacific's damaging flight attendants strike earlier this year. Group chairman Peter Sutch has forecast continuing growth in rental income for 1993. Mr Kerr said: ''We had been studying the retail sector in Kowloon for a long time and saw the Yau Yat Tseun site had great potential to start another investment hub. ''When it came to the Government land auction we were prepared to be bullish because we saw this as a long-term play.'' Swire Properties had been looking at buying the 280,510 square foot residential-retail Kowloon development site at Diamond Hill at the previous auction, but was heavily outbid by a consortium of Peter Woo's Wharf-World International family of companies which paid a record $3.53 billion for a piece of Crown land. The development of the Yau Yat Tsuen site is expected to cost Swire Properties and CITIC Pacific about $5 billion, taking into account the cost of the land, construction and interest payments. Swire Properties has now used up most of its substantial land bank and has been anxious to replenish it. Further more modest land purchases might be made where appropriate, Mr Kerr said, but the company would have to keep a close eye on cash flow and gearing. Swire Properties has committed itself to ploughing large sums of money into a number of other projects planned for the next few years and consequently is being cautious not to over-stretch itself. Mr Kerr said Swire Properties was a big believer in keeping a sizeable sum on reserve to allow for unforeseen circumstances. It's been an exceptionally expensive year for Swire Properties so far. Additions to its portfolio of redevelopment properties in Quarry Bay included the purchase of the Toppan Building for $750 million in April and the South China Morning Post building for $500 million. The two latest acquisitions should merge nicely with the completion of other Swire developments in the immediate area, Devon House and Dorset House on its Taikoo Place Trading Estate, the latter of which will incorporate the Hongkong Telecom Tower. Mr Kerr said further acquisitions may be made in the area, should the right opportunities arise, to continue its steady expansion. Swire is also gearing up for the launch of sales of residential units at Robinson Place in Robinson Road, Mid-Levels. It will be the company's first venture into the residential sales market since the launch of Park Vale back in 1989. This will be the first of a few residential development sales by Swire over the next few years. While most other property hongs are trying to increase the investment side of their businesses to boost recurring income, Swire Properties is doing the exact opposite. Swire already has a very healthy investment side to its property portfolio, and feels the trading side of its business needs to play catch-up. However, Mr Kerr said Swire Properties would still remain primarily an investment property company. Swire Properties has to date been approaching the booming China real estate market at a snail's pace. It finally crossed Boundary Street in Kowloon for the first time in March when it teamed up with CITIC Pacific to buy the Yau Yat Tsuen site. Up to now Swire Properties has been a pure Hongkong real estate play, and almost exclusively Hongkong Island at that. But times are changing and Swire Properties is well aware of the future opportunities China holds. Mr Kerr said the company had a team of researchers studying the market, but it could be perhaps another four years before Swire Properties moved into China in any force. He said that in the short-term the company had more than enough on its plate coping with the large number of projects lined up in Hongkong. However, in the medium and long-term, Swire Properties could become a star China player. ''No way have we missed out,'' insisted Mr Kerr. ''Their are still plenty of opportunities in China.'' He said Swire Properties was being cautious, both waiting for the China market to mature and taking great care that when it did make a move, it would be the right one. ''Developers traditionally don't travel very well,'' Mr Kerr said. ''Developers who stay local tend to do well. ''However, we do see the integration of Hongkong and China and therefore China will become local to us.''