Cheung Kong (Holdings) has agreed to pay a HK$250 million land premium to convert the hotel portion of its Cheung Sha Wan commercial-residential redevelopment into a residential project. The agreement was reached early this year and it was the latest premium settlement between the Lands Department and developers. The company's original plan was to build five residential towers, a 646-room hotel, a retail arcade and community assembly area on the former shipyard site. The site provides a total floor area of 1.65 million square feet. The company paid a HK$1.5 billion land premium on the redevelopment plan two years ago, which represented an accommodation value of about HK$1,200 per square foot. However, the company revised the mix of properties to be built and last year secured Town Planning Board approval to convert the 470,000 sq ft hotel portion into 370,000 sq ft residential use. A land premium for the conversion was needed due to an increase in land values. The agreed premium represents an accommodation value of HK$675 per square foot. The project is a joint venture with the original shipyard owners. Last year, Henderson Land Development paid a premium of about HK$40 million for a conversion of a hotel portion into retail use in its Tai Kok Tsui commercial-residential redevelopment on a former shipyard site. Land premium settlements have been slow during the past few months in the face of weak market sentiment. The last major settlement was in November when Hang Lung Development paid HK$550 million for converting an industrial site into a residential development in Tsuen Wan. It represented about HK$1,188 per square foot. The Lands Department is working on several land premium projects including MTR Corp's Ping Shek park-and-ride residential project in Choi Hung and the conversion of hotel into residential use in Olympic Station. Analysts expected land premium settlements to play a greater role in next financial year's land revenues in the wake of the drastic cut in public land sales. Only five hectares of residential land will be definitely sold next financial year as most land has been put on the application list.