Hong Kong developers finalists in battle for US$2.1 billion site in Shanghai shopping heartland

Hong Kong developers Shui On Land and Hongkong Land are vying for a prime plot of land in central Shanghai, a move that underscores the rising appeal of China’s top cities among overseas companies.

Two companies have entered the final stage of bidding for the land, according to a statement posted on the official Shanghai Land Market website on Monday. The statement did not disclose the competing companies’ names and said the final results would be released 10 working days later.

Shui On, however, confirmed to the South China Morning Post it was in the running and “hopes it can secure the plot”.

Hongkong Land said “it does not comment on market rumours about projects” when approached by the Post, but a source in the commercial property sector confirmed it was the other bidder for the plot.

The 78,256 square metre site is located near the landmark Xintiandi shopping complex, a rarity considering few such plots have gone on sale in Shanghai in recent years. Its starting bidding price is 13.58 billion yuan (US$2.11 billion), or 44,800 yuan per square metre if the total floor space is 302,700 square metre, the maximum space allowed.

“In tier 1 cities, where prime land is rare, investment logic is vastly different from that in other cities. Consideration is put in a 10-year, 20-year time frame, instead of two to three years,” said Zhu Jing, a property analyst with Orient Securities.

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Shui On, the developer behind the classic redevelopment of Xintiandi in the early 2000s, has been trying to expand its land bank in China, particularly in Shanghai, for a long time as it tries to shake off years of single-digit revenue growth. Its property sales in 2017 rose by 38 per cent to 30.3 billion yuan, but that was mainly through the sales of equity interests in Shanghai, Chongqing and Dalian projects to mainland Chinese developers, instead of property to retail buyers. Its contracted sales fell by 7 per cent last year.

But the bulk sales helped to cut its net gearing ratio from 68 to 51 per cent between 2016 and 2017, according to its result. By the end of last year, it held 16.7 billion yuan in cash and bank savings, which it is eager to invest.

Hongkong Land, the largest commercial landlord in Hong Kong’s Central district, has also been ramping up its investment in China. In January, the developer won a site in downtown Nanjing for 47.7 billion yuan. On Wednesday it formally opened its US$1.2 billion shopping centre, WF Central, in Beijing, seven months after a soft opening. The developer is also working on a commercial project in Shanghai’s Qiantan area.

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Thanks to the Shanghai government’s rigorous vetting process, a move designed to control land prices, only the two Hong Kong developers made it to the final list, which will ensure a low premium over the starting bidding price, analysts said.

“Huaihai Road is the face of Shanghai, so the government wouldn’t allow low profile companies with less commercial property development experience to engage,” said Lu Wenxi, a senior analyst at Centaline Shanghai, adding that the government specified in its tender invitation that only the world’s largest 500 companies with commercial properties as their main revenue sources were welcome.

This fended off competition from Chinese developers, as they mostly rely on residential property, from the start.

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This is in stark contrast with just two days ago, when it took Hang Lung Properties 10.7 billion yuan, or a 118.5 per cent premium, to win a site in Hangzhou, south of Shanghai. It took Hang Lung more than seven hours to outbid mainland and Hong Kong developers, including Wharf, CR Land, Sun Hung Kai Properties and New World Development, to secure the priciest plot in the city’s history.

“This intense competition is due to the government’s less stringent vetting before auction, and bidders have to compete on a price basis,” said Centaline Shanghai’s Lu.