Chinese conglomerate HNA Holding Group has outbid 20 rivals to win its second residential site in Kai Tak for a record HK$13,600 per square foot. HNA secured the parcel of land, known as Kai Tak Area 1L Site 3, with a bid of HK$5.41 billion, 24 per cent to 38 per cent higher than the market expectation of HK$2.98 billion to HK$4.38 billion, or HK$7,500 to HK$11,000 per square feet. The HK$13,600 per square foot price tag is HK$100 higher than the previous record set by HNA on November 2 when it bought an adjacent plot - Kai Tak Area 1K Site 3 - for HK$8.84 billion. The big premium reflects the developer’s confidence that the area will be transformed into Hong Kong’s second core business district Thomas Lam, senior director, Knight Frank The unexpectedly high bid came despite a weaker outlook for developers in the wake of the interest rate rise in the US and the introduction by mainland authorities of tighter curbs on capital outflow. Thomas Lam, senior director at Knight Frank, expects the total investment cost for the latest site will be more than HK$10 billion. “The big premium reflects the developer’s confidence that the area will be transformed into Hong Kong’s second core business district in the future,” he said. Vincent Cheung Kiu-cho, executive director of valuation and advisory services for Asia at Colliers International, said the bid submitted by HNA raised concerns that the group intends to support the land price at Kai Tak after securing the first plot for such a jaw-dropping sum. “If this adjacent site had sold for a lower price, it may have complicated the group’s plan to raise financing from banks after seeing land prices drop in such a short period of time,” he said. The latest acquisition has increased the value of HNA’s property investments in Hong Kong to HK$14.25 billion against the listed firm’s market capitalisation of just HK$3.13 billion. On December 4, HNA Holding announced that its controlling shareholder, Hong Kong HNA Holding Group, had pledged 6.39 billion shares in the listed vehicle “as security for certain banking facilities or guarantees”, according to a filing with the Hong Kong stock exchange that did not disclose the size of the loan it intended to raise. Cheung said the group could achieve better economy of scale by merging the two adjacent Kai Tak sites into one bigger residential development. Combining the two sites would yield a residential development with a gross floor area of 1.05 million square feet, making the land cost HK$13,537 per sq ft. Cheung expects HNA to offer the units built on the site for around HK$22,000 per square foot in order to generate a reasonable profit. In September, apartments at the One Kai Tak development, built by China Overseas Land & Investment, were selling for HK$18,500 to HK$20,000 per sq ft. Hong Kong property experts ‘shocked’ at record sale result for Kai Tak area site The key objective of the Kai Tak development area - the site of Hong Kong’s former airport - is to house a population of up to 90,000 and create more than 83,000 jobs by making it the core part of the city’s second central business district. It aims to provide 62.43 million square feet of office space, double that of Central by 2020. Lam believes upcoming land auctions in the area will continue to generate ample interest from other developers, although he does not foresee any further record-breaking bids. “Taking into account the potential for further rate rises in Hong Kong and the new stamp duty, land prices in the area are unlikely to set new record highs again,” he said. Since 2013, the government has sold eight residential sites and one commercial plot in Kai Tak. The cost of residential land in the area has jumped 201 per cent from HK$4,913 per sq ft in June, 2013, to HK$13,600 per sq ft on Monday. The latest site, which will yield a total gross floor area of 397,967 sq ft, is close to the proposed Kai Tak MTR station and would enjoy one of the best view in the area, according to James Cheung, a director at Centaline Surveyors.