New World wins 'sweet deal' MTR Tai Wai project

The MTR Corp yesterday awarded the property project at its Tai Wai station in a desperate deal that will allow the winning bidder, New World Development, to cut the initial investment to nearly a quarter.

The mega housing project by the government-controlled rail operator will provide a fillip to the government in meeting this year's private housing target of 18,800 flats.

Announcing that New World had secured the residential portion of the project to provide 2,900 flats, chairman Henry Cheng Kar-shun said: "The project will involve a total investment of about HK$20 billion."

Alfred Lau, an analyst at Bocom International, said New World's option of just developing the residential portion would only require an initial investment of HK$2.86 billion, while the balance of HK$7.5 billion would be paid by MTR in return for ownership of the shopping mall.

"With MTR paying 72 per cent of the land premium, it's definitely a sweet deal, where the developer effectively pays only HK$1,000 per square foot in terms of gross floor area initially for the residential part, compared with an average selling price of HK$11,000 per square foot in the locality," Lau said.

The site could yield a gross floor area of 2.7 million sq ft of residential space with 2,900 flats, and 600,000 sq ft of shopping space.

Lau said New World still needed to bear an estimated HK$3 billion in construction costs for the shopping mall that it would hand over to MTR after the completion.

"The HK$3 billion construction cost of the mall could be settled by bank loans. So the revised terms significantly reduce the winning bidder's investment risks," he said.

MTR has been under pressure from the government to release land in order to ease supply. It cut the land premium and broke up the station project into residential and residential-retail to allow more medium-sized developers to participate in the tender. An earlier tender in 2012 had to be withdrawn because of lack of interest and low bids.

Under the more generous terms MTR adopted for the latest tender, the land premium was cut to HK$10.36 billion, or HK$3,832 per square foot, from HK$12.7 billion, or HK$4,410 per square foot.

"The successful sale of Tai Wai station, which will account for 15 per cent of this year's flat supply, means the government stands a high chance of meeting its housing target," said Alvin Lam, a director at Midland Surveyors.

The government aims at providing 18,800 private flats a year, including those built on land sold by MTR and projects by the Urban Renewal Authority. Including the Tai Wai station site, land sold for the first half of the financial year to March will be able to provide about 10,100 flats.

MTR is required to sell enough land to provide 4,600 units, or nearly 70 per cent of the targeted 6,700 for the three months to December, under the government's land sale programme for this quarter. The balance will come from government land sales and the URA.

"Considering the small upfront payment, it is one of the most favourable tenders as MTR needs to speed up land sale," Lau said.

The site attracted nine bids including from Cheung Kong (Holdings), Sun Hung Kai Properties, Henderson Land Development and Wheelock Properties.