Shui On consortium wins prime Shanghai site for US$2 billion in government tender
The plot near Xintiandi – expected to generate more floor space than Hong Kong’s IFC One and Two – requires a total investment of US$3.8b, say analysts
A consortium led by Shui On Land has won a prime commercial plot in Shanghai in a government tender for 13.6 billion yuan (US$2.08 billion), a mere 0.1 per cent higher than the starting price.
The tender only drew two bidders at the final stage of the bidding because of the tough development requirements and the massive capital investment needed for the site, which was offered for 13.58 billion yuan.
The Hong Kong-listed developer’s partners in acquiring the lot on one of Shanghai’s main commercial thoroughfares Huaihai Zhong Road are China Pacific Insurance, which has a 70 per cent stake in the consortium and state-owned Yongye Group, a 5 per cent interest. Shui On owns a 25 per cent stake.
“Shui On has been selling assets for years but regained its bidding interest mainly because of the scarcity of prime site put up for sale,” said Raymond Cheng, head of research in Hong Kong and China research and property at CGS-CIMB Securities, in a research note.
Bidding with a consortium could reduce Shui On’s risk as huge capital investment was required to develop the site, Cheng said.
“The other two cash rich partners will also leverage on Shui On’s expertise in property development, particularly when its Xintiandi [entertainment district] has become an icon in Shanghai,” he said.
Shui On has been focusing on paring down its debt. Last month, the company, chaired by Vincent Lo Hong-shui, raised 4.58 billion yuan from the sale of a 49 per cent stake in certain properties in the residential and commercial project Shanghai Rui Hong Xin Cheng.
The site’s 13.6-billion yuan price tag would translate into 34,809 yuan per square metre, based on the projected 390,700 sq m of total floor space that could be built, which is slightly bigger than the combined size of Hong Kong’s International Finance Centre One and Two.
Alan Jin, a property analyst with Mizuho Securities, said 34,809 yuan per sq m was cheap given the proximity to the Xintiandi district.
“Commercial land sites in the central districts of Shanghai were sold at an average price of 44,000 yuan per sq m in 2017. The plot is a rare commodity given the scarcity of the land supply in such prime areas in the city,” he said.
The winning developer of the tender, according to the land sale document, is required to hold on to the developed office space for at least 20 years.
“There are many terms attached to this land sale. Aside from how the project should be developed, it also requires the developer to hold and operate the project for a prolonged time, which has already eliminated many Chinese developers who are more interested in making quick money through the “build-for-sell” model,” he said.
Property consultants estimated that a total investment of 25 billion yuan, inclusive of land cost, would be needed.
“This area is like Shui On’s home ground. I guess no other developer is more suitable than Shui On Land to develop this area, which the local government probably would not like some average developer to build and mess up,” Jin said.
Shares of Shui On Land dropped 1.1 per cent to close at HK$1.83 on Thursday.