Developers are lukewarm on Kai Tak’s commercial plot as trade war impasse creates an anticlimax to a week of record home sales
- Commercial development of hotels, office towers and shopping centres are more capital intensive and require longer payback than building residential flats
- Zoning regulations on the latest commercial plot requires at least a third, and up to half, of the gross floor area to be set aside for a hotel of between 480 and 800 rooms
The second commercial property plot on the runway of Hong Kong’s former airport received fewer bidders when a government tender closed on Friday, as the absence of a resolution in the US-China trade war provided an anticlimax to a week of record-breaking sales in the city’s home market.
Area 4C Site 4 on the Kai Tak runway, valued at HK$11.2 billion (US$1.4 billion), or HK$13,000 per square foot for the 863,000 square feet (80,175 square metres) of gross floor area, received six bids, according to the Lands Department. A January tender for the first commercial plot was scrapped after the nine bids received failed to meet the government’s minimum price.
“Developers are choosing to be cautious, and adopt a wait-and-see approach, after the escalation of the trade war,” said Vincent Cheung, managing director of Vincorn Consulting and Appraisal, who expected at least seven to eight bids for the oceanfront plot. “The issues between the US and China will continue much longer than expected.”
Commercial development, whether for office towers, shopping centres, or hotels, are a lot more capital intensive than building apartments, another reason that gives developers reason for pause, Cheung said.
The oceanfront plot, located near the city’s cruise terminal, offers full view of Victoria Harbour, which separates Hong Kong Island from the Kowloon peninsula and will host a hotel up to 800 rooms, and some office blocks.
US-China negotiations to avert the year-long trade war between the world’s two largest economies ended at noon when the tender closed, with 25 per cent of US tariffs on US$200 billion of Chinese imports going into effect. Hong Kong’s benchmark Hang Seng Index fell 5 per cent this week.
Developers who did submit their bids included Sun Hung Kai Properties, CK Asset Holdings and Sino Land, according to agents and valuers familiar with the submissions.
Kai Tak, left vacant after the city’s airfield shifted to Chek Lap Kok in 1998, will be redeveloped into Hong Kong’s second central business district. A total of five commercial sites are scheduled for tender on the site, three of them located on the former runway that juts into Victoria Harbour, offering unobstructed oceanfront view.
At least 30 per cent – and no more than half – of the gross floor area of Area 4C Site 4 will have to be reserved for a hotel, which can accommodate between 480 and 800 rooms, with the remainder zoned for commercial purposes such as offices or retail space.
Still, the projected population in the area may be insufficient to support large retail and commercial projects, which are more capital intensive to build, said Colliers International’s head of valuation and advisory services Hannah Jeong.
“There is doubt whether Kai Tak needs that much commercial space,” she said.
At Wheelock Properties’ Montara apartment complex in Lohas Park, potential buyers sent in 12,000 bids to vie for 116 flats that are being offered for HK$15,612 per sq ft after discounts. Buyers snapped up all 116 flats on offer, fetching the developer HK$940 million, agents said.
The buying frenzy followed last Saturday’s showing at Montara, where 18,000 buyers – or 36 bidders for every available unit – competed for 500 apartments, yielding Wheelock a HK$4 billion haul that set a record for the biggest single-day turnover.
