Hongkong Land JV to Build 526 Shanghai Homes After Buying $700M Residential Site

Hongkong Land has teamed up with a state-backed Shenzhen developer and a local government body to take on a new Shanghai residential development after purchasing a Xuhui district site for RMB 4.73 billion ($700 million), despite the headwinds faced by the mainland’s property market.

A joint venture between Hongkong Land, Shenzhen-listed builder China Merchants Shekou and a unit of municipal investment firm Shanghai Huicheng Group clinched a 21,943 square metre (236,192 square foot) site next to an existing Hongkong Land project near the Huangpu River 1 June, with the partners planning to develop a six-building residential complex.

“The site is next to our prime mixed-use development, which will be part of the new urban hub in Shanghai West Bund,” a Hongkong Land spokesperson told Mingtiandi. “The hub will become a new landmark of Shanghai, with a world-class urban waterfront space and central business district focused on supporting cultural and technological innovation and a home to the financial services industry.”

Marking the company’s fifth project in Shanghai, the development is situated next to the 1.1 million square metre West Bund Financial Hub project that the developer acquired two years ago, as Hongkong Land doubles down on the West Bund area despite an ongoing real estate slump that has pulled down China home prices for nine straight months.

Betting Big on West Bund

At the agreed compensation for the 54,857 square metre project, the JV, which is evenly split among the three firms, is paying RMB 86,284 per square metre of gross floor area in the complex that could yield at least 526 new homes. Terms of the land sale require that at least 5 percent of the project be dedicated to affordable housing and construction of 2,740 square metres of community space, including a senior centre is also stipulated.

The land sale terms also restricts pricing on homes in the project to a maximum of RMB 131,000 per square metre.

Located at the intersection of Zhaofeng Road and Middle Longhua Road, the property is roughly six kilometres (3.7 miles) south of Shanghai’s city centre along the west bank of the Huangpu River. The project is located close to the Dapulu tunnel which links Pudong’s Houtan area with traditional Shanghai and just a few blocks from the Nanyuan Waterfront park.

While Hongkong Land has yet to release a timeline for the project, the new development represents an expansion of its existing West Bund Financial Hub project, which it acquired for RMB 31.05 billion in early 2020 and aims to complete in 2027.

Positioned as a rival to Pudong’s Lujiazui commercial hub, Hongkong Land aims to build 650,000 square metres of office space and 210,000 square metres of retail, alongside luxury homes, hotels, a convention centre and sports facilities on the commercial site.

“The acquisition is in line with the group’s long-standing strategy to expand its portfolio in key gateway cities across Asia,” the spokesman said.

State-owned China Merchants Shekou joined the bid as part of a string of land purchases this year, including spending RMB 11.8 billion to secure Shanghai plots in the first week of this month. That spending spree, which makes it Shanghai’s biggest buyer this year, comes after the firm acquired 113 development sites spanning 6.66 million square metres in 2021.

Shaky Housing Market

James Macdonald, head of Savills Research China, said that developing a residential complex next to the West Bund Financial Hub can leverage the appeal of the commercial development, with the two projects having “increased synergies considering it is the same developer.”

“The price cap on the sale of units in the property at RMB 131,000 per square metre would seem to be very achievable,” Macdonald said, noting that residential properties in the second phase of the nearby Shanghai Bay project have been selling for RMB 110,000 per square metre over the past two to three years.

Government statistics published this week show that new home prices across Chinese cities, excluding subsidised housing, dipped by 0.17 percent last month from April to mark the ninth consecutive month of decline, as a sluggish economy stifles demand and key cities like Shanghai struggle to emerge from lockdowns.

“China / Shanghai markets are faced by significant challenges now given the slowdown in the economy and the knock-on effect that this is having on household finances and consumer confidence, as well as the continuing struggle faced by developers to meet existing debt obligations,” Macdonald said.

Considered as the world’s third largest city by population, he said developers in Shanghai should brace for a “crowded sales market” over the next few months as a wave of project launches meets limited demand from homebuyers.

“In the mid-term, the premium market should remain relatively stable with a backlog of buyers still looking for their ideal home,” Macdonald said. “Real estate is still considered a store of wealth during uncertain times and first tier cities like Shanghai tend to be some of the safest.”