MTR Corp will study residential development in other railway stations to increase flat supply, says property director
As property director of Hong Kong’s subway operator MTR Corp since 2011, David Tang Chi-fai leads a team looking after 13 shopping malls, managing 96,000 retail units and the building of 28,000 flats – 18,000 for MTR and 10,000 for West Rail – through partnerships with private developers.
With the government holding a 75 per cent stake in the rail operator, it bears an important responsibility in helping ease the city’s housing shortage at a time when home price growth has shown no signs of slowing.
In the coming 12 months, MTR Corp plans to offer seven property projects for tender, the largest number in a single year for the rail operator. These projects will provide a potential 8,000 flats, about 42 per cent of the Hong Kong government’s target of 19,000 private flats in the year to March 2018.
Under Tang, MTR Corp has adopted flexibility in tendering for projects by breaking up mega-sized developments to boost the chances that the sites will sell out.
At the same time, he actively sought new development opportunities at the company’s railway stations and enhanced its leasing portfolio options including converting a lorry park in Tsing Yi and office floors in Telford Plaza in Kowloon Bay into retail spaces.
What railway stations have potential for residential development?
One is above the depot in Siu Ho Wan on Lantau Island which could house 14,000 apartments. MTR is close to completing the environmental impact assessment for the site. Another site, currently under rezoning, is above Yau Tong Ventilation Building, where about 500 flats could be built.
I n February, Ping An Real Estate Capital, a unit of China’s second largest insurer Ping An Insurance, teamed up with a small Hong Kong firm called Road King Infrastructure. In December, Goldin Financial secured the phase one development at Ho Man Tin Station, which is in stark contrast to previous tenders that were dominated by local property giants.
How does MTR Corp ensure their financial strength and ability to complete projects along the railway lines in the absence of a track record?
New entrants to Hong Kong’s land market is also happening in government land sales through tender. It’s a healthy trend as more participants will enhance advancement in the industry. Our tender documents state clearly that all developers have to meet our financing requirements which vary from tender to tender.
In terms of quality control, the winning developers, regardless whether they have strong experience in United States or in China, still need to comply with Hong Kong’s standards. Joint venture partners are also subject to the supervision of the Building Department and Labour Department in terms of submitting building plans and hiring construction workers. They need to hire Hong Kong-recognised architects, structural engineers and electrical and mechanical engineers to do the job. The professional teams they are hiring is no different from local players.
Are mainland developers submitting more aggressive bids than local players to increase their chances of winning?
Hong Kong is a free market. I will not say there are differences between locals and mainland players. Everyone has different views of the market outlook. The most important thing is that the developer has to comply with the building rules in Hong Kong.
In 2014, the government criticised MTR Corp, a major source of land supply, for not doing enough to help ease the housing shortage and warned the company that it would take back the development rights on some stations for the building of public housing. Why did that happen?
The property market was very difficult in 2012 and 2013. MTR Corp had been forced to withdrew some projects from tender due to unsatisfactory bids. But the launch of any tender is subject to market sentiment. When the market sentiment started to improve in 2015, we adopted more flexibility when tendering projects in a bid to achieve a higher success rate in selling sites. When we offered to buy back the retail portions of stations at Tai Wai and Lohas Park, it proved it worked. (In 2015, it sold four sites.)
More importantly, our source of land comes from the government which allows us to use the profit from development to finance railway construction.Through the railway plus property model, we are one of the world’s few profitable railway companies. We also want quicken the cash-flow return to fund our railway expansion.
We have no reason to defer tenders for property projects. Bear in mind that the government, our biggest shareholder, also benefits when we make a profit as it will receive more dividend.
Hong Kong developers have complained that the government should directly offer property projects along railway stations for tendering instead of through MTR, whose harsh terms such as high profit sharing ratio have significantly squeezed their profit margins. What do you say?
Integrating property developments atop railway stations is very complicated work. MTR has to invest in the initial stages such as formulating comprehensive designs. Besides the residential purpose, there are also commercial, government, institutional and community facilities in the project that need to be planned. We also have to ensure the construction will not affect normal train services. Even though we earn extra money, our profit eventually goes back to our biggest shareholder, the government, through dividend payouts.
Why is the Maritime Square extension being built by MTR Corp, which is different from other shopping centres built by developers?
The two shopping malls are part of the 1,250-unit Lohas Park phase seven development and the 2,900-unit Tai Wai Station which are integrated with the residential portion. It is impossible to divide the construction between developers and us. Therefore, the tenders for both stations allow developers to build the mall and then sell it back to MTR Corp.
How will MTR Corp’s retail malls cope with the change of customer spending behaviour?
Online shopping in Hong Kong is still lower than in the mainland and Western countries.
We want our shopping centres to become a “third place” for our customers. Everyone spends a third of their time at home, a third at work and the rest on dining and entertainment. We will access our residents’ expectations for shopping malls. Can we offer functions in addition to just shopping? Previously, shopping centres were dominated by tenants selling jewellery or cosmetics. But now we see more space allocated for food and beverage and entertainment. As people’s awareness of health concerns rises, we will study if a healthy lifestyle is becoming another new trend for shopping malls.
What are your favourite MTR stations?
I like Kowloon Station which is a landmark example of our railway plus property funding model. Kowloon Station comprises a luxury shopping centre; Elements; Hong Kong’s tallest office building International Commerce Centre; the Ritz-Carlton hotel and luxury residential projects such as Cullinan.
I also like Kowloon Bay station where the company put its first shopping mall, Telford Plaza, and its headquarters.
