Shui On Construction and Materials will acquire a large residential project in Shanghai from its major shareholder for 185 million yuan (about HK$173 million) in a first and significant step into the mainland property market. The project, Rui Hong Xin Cheng, in Hongkou district of Puxi, comprises high-rise residential development of up to 1.42 million square metres, a 250,000 square metre shopping centre and 50,000 square metres of amenities. Originally 99 per cent owned by Shui On Properties, a private company held by Shui On Construction chairman Vincent Lo Hong-sui, the project will be taken up by Shui On Construction from the second phase. The first phase will continue to be developed by Shui On Properties. Mr Lo said the investment for the second-phase development was estimated at 1.4 billion yuan. He said the development right was transferred to his listed arm at cost, and the 185 million yuan represented the money spent by Shui On Properties on the infrastructure on the 40 hectare site. However, if the future selling price of the project exceeded 7,500 yuan per square metre, Shui On Properties could claim 20 per cent of the additional profit, he said. Mr Lo said the first phase was sold at an average price of 6,700 yuan per square metre, 30 per cent higher than surrounding developments. He said the development cost of the second phase was cut to slightly lower than 6,000 yuan per square metre due to a tax concession and a government subsidy for rehousing costs following a renegotiation of terms. Mr Lo said Shui On Construction undertook the mainland property project because the Hong Kong construction sector no longer provided much room for expansion while the Shanghai property market had performed better recently. He said the project would be half financed by bank borrowings. Shui On Construction has HK$700 million cash in hand with more cash flow to come. It would still look for new investment projects such as mainland cement plants, Mr Lo said. The second-phase development of Rui Hung Xin Cheng is scheduled to be completed by the end of 2003.