Empires on the cheap

Hong Kong developers have built their multibillion-dollar empires on extraordinarily cheap land obtained through the city's opaque process of land exchanges, a South China Morning Post investigation finds.

Since the early 1980s, 30 major properties developed by Cheung Kong (Holdings)/Hutchison Whampoa, Henderson Land and Sun Hung Kai Properties were converted from farmland or old industrial sites through a government land exchange mechanism.

In 17 of these land exchange deals, developers paid a land premium of less than 15 per cent of the retail property price. The easy terms were in sharp contrast to the cost of land in public auctions, which is about half the retail price nowadays. Or, put another way, more than two-thirds of the total development cost.

In one extreme case, Cheung Kong paid a nominal lump-sum land premium of HK$2,000 in 1986 to 1987 for a couple of old factory lots in Tsuen Wan. The lots had no user restrictions, and the developer built Belvedere Garden offering 6,040 flats.

In an even better deal, Henderson Land didn't have to pay a penny in 2005 for the redevelopment of old oil tanks at To Kwa Wan. It replaced the tanks with the five-tower Grand Waterfront, an apartment project that eventually brought in an estimated HK$2 billion in revenue

Cheung Kong and Hutchison Whampoa have a long record of sourcing cheap land. In 1984, the companies controlled by Li Ka-shing paid a land premium of only HK$390 million, or an average of HK$51 per sq ft for a dockyard in Hung Hom Bay. They turned that into Whampoa Garden with 10,286 flats - this, at a time when the residential retail price exceeded HK$600 per sq ft.

Across the harbour, another sea-view project, South Horizons, cost the developer a land premium of HK$623 million to build 8.1 million sq ft of residential properties, or an average of HK$77 per sq ft in 1988, when buyers on average were paying HK$1,228 per sq ft.