Hong Kong’s former Kai Tak airport site poised for record sale

A commercial site in what some are already calling Hong Kong’s future second core business district goes up for sale on Friday – being tipped by experts to become a new “land king”, the most-expensive land by value – at Kai Tak, the city’s former airport.

Local developers are likely to fight tooth and nail for the site, named Area 1F Site 2, which some expect to significantly push up commercial property prices in the city.

The tender will close on Friday at noon, with the Lands Department likely to announce the winner next week.

The value of the site, which will yield a total gross floor area of 1.91 million square feet, is expected to be anywhere between HK$14.3 billion (US$1.84 billion) and HK$22 billion, or HK$7,500 per sq ft to HK$12,000 per sq ft. The site is designated for office, retail or hotel development.

The prospect of mainland developers joining the fray too, could also escalate those prices further, especially given HNA Group’s aggressive purchases of four residential lots already in the area, said Vincent Cheung Kiu-cho, Colliers International’s deputy managing director for Asia valuation.

He has even projected the site could fetch in excess of HK$22 billion, or HK$12,000 per sq ft, the most bullish forecast in the market.

“Kai Tak will be transformed into Hong Kong’s second CBD in a space of 10 years from now,” he said. “Even if land prices go up to HK$12,000 per sq ft, they will still be much lower than the HK$50,000 per sq ft being charged in Central.”

Henderson Land Development, chaired by Hong Kong’s second-wealthiest man Lee Shau-kee, paid a record HK$23.28 billion, or HK$50,064 per sq ft, for the government’s Murray Road car park in Central on May 16, now considered the world’s most expensive commercial land plot.

“Area 1F Site 2 will definitely become the priciest site by value in the Kai Tak Area,” said Victor Lai, chief executive of property consultancy Centaline Professionals.

In November last year, Sogo department store operator Lifestyle International Holdings won a commercial site in Kai Tak for HK$7.39 billion, or HK$6,733 per sq ft.

Lai estimates 1F Site 2 could generate a bid of HK$14.34 billion, or HK$7,500 per sq ft.

Taking into account construction and interest expenses, he expects the winning developer could need to make a total investment of HK$28 billion.

He said the recent tightening on property lending to developers by the Hong Kong banking regulator, however, might affect mid-sized developers and mainland players’ bidding strategies.

“Instead of bidding alone, two mid-sized developers could join forces to overcome the credit tightening policy and reduce initial capital commitment and risk,” he said.

The Hong Kong Monetary Authority has ordered banks to tighten their lending to developers from next month, to guard against rising credit risk.

Under the new measures, the maximum limit for bank loans to buy land has been cut to 40 per cent of the value of the site from 50 per cent. The cap on loans for construction costs is 80 per cent, against 100 per cent previously. And the overall cap on financing for the entire project has been reduced to 50 per cent of the expected value of the completed properties, down from 60 per cent.

However, speculation is also growing that the mainland government has been asking land developers there to slow down their purchases in Hong Kong to avoid any unnecessary overheating of the city’s land market.

“Fewer mainland bidders for the Murray Road government tender may reflect the central administration wanting to discourage high-profile blind bidding in the Hong Kong property market,” said Lai.

Having said that, he noted mainland developers have tended to prefer acquiring residential plots, rather than commercial sites, which require intensive capital commitment and longer pay-back periods.

“Residential projects provide quicker returns as units can be offered pre-sale, 30 months ahead of completion,” he said.

“The latest Kai Tak site and Murray Road site are restricted from strata-title sale. Althought the future office projects could be offered as whole block sales, it will take longer to find potential buyers.”