Sino Land's winning bid of $1.82b rekindles debt worries
Developer's 'too heavy' price for Kowloon Bay commercial site is reminiscent of aggressive bidding strategy in 1990s
Sino Land stormed back on to centre stage in the property market yesterday, but its aggressive $1.82 billion winning bid for a Kowloon Bay commercial site baffled analysts.
One analyst said Sino Land's outlay of $2,988 per square foot for the 50,752 square foot property was 'too heavy' in terms of rental yield and comparable pricing in the industrial neighbourhood.
The bid almost tripled the opening bid of $608 million and was well above estimates for the first commercial auction since October 2001.
'The bid translates into a rental yield of about 3 per cent and will be quite risky if interest rates rise,' the analyst said. 'The projected selling price of over $5,000 per square foot for the completed project is also on par with the price of grade A office space in Central 9 Queen's Road about 18 months ago.'
Yesterday's bidding, which lasted more than an hour, narrowed to a two-way contest between Sino Land and Kerry Properties after veteran investor Lobo Law Ka-po withdrew at $1.64 billion.
Although the commercial site - which Sino Land said would be developed mainly into offices, a shopping centre and possibly a boutique hotel - was relatively small, analysts said the hefty bid would remind investors of Sino Land's overly aggressive bidding strategy during the 1990s property boom that saddled it with huge debts.
In March 1997, it paid a record $11.8 billion for a 275,472 sqft residential site in Siu Sai Wan, which now houses the Island Resort upmarket apartments. Prices being fetched there are lower than the developer's costs.
Sino Land had been keen to change its aggressive image and shifted to a low-key approach, acquiring smaller sites about two years ago to replenish its land bank when prices were low. Among its latest acquisitions were a $266 million private tender for a site at 53 Conduit Road, Mid-Levels, and a small Urban Renewal Authority project in Shamshuipo.
The developer was also outbid for five previously auctioned government residential sites.
BNP Paribas Peregrine regional property analyst Adrian Ngan Wai-hung said yesterday's bid would put pressure on Sino Land's share price in the short term. It dropped 2.81 per cent yesterday to $6.90.
'The genuine value of the site should be about $1.5 billion to $1.6 billion, which is the price at which most other competitors dropped out,' Mr Ngan said.
'Kerry Properties and Sino Land can afford to over-bid as both have significant portfolios in the district that will benefit from a high selling price of a government site,' he said, adding that firms with a key portion of investment properties would get a lift from the high auction price.
The frenzied response to the Kowloon Bay auction was also prompted by the bullish outlook in the office market.
Analysts cited the 50 per cent price rise at Enterprise Square Three, the Kowloon Bay development by Kerry, since its launch in February last year.
According to property agents, the tower's medium-floor office space, which was sold to leading names such as Esprit and BCBG for about $2,000 per square foot in February last year, is now selling for more than $3,500 per square foot in the secondary market.
