K Wah Wins Residential Site in Hong Kong’s Mid-Levels West for $70M

K Wah International Holdings is adding an eighth residential project to its Hong Kong pipeline after the HKEX-listed developer’s offer of HK$551 million ($70.1 million) led a government tender for a plot in the Mid-Levels West, according to an announcement late Tuesday..

Despite besting ten competing bids, the winning offer by the developer controlled by casino tycoon Lui Che-woo was well below market expectations of HK$580 million to HK$950 million for what was one of just two Hong Kong island residential sites to be made available in the government land sale programme for the first half of the year.

The bargain sale was likely due to rising interest rates and restrictive terms of the tender including a limited number of parking spaces, said Vincent Cheung, managing director at Vincorn Consulting and Appraisal.

While Swire Properties HK$1.96 billion purchase last month of the only other Hong Kong island residential site offered by the government in the first half of the year came in at the high end of expectations, market data released since that time show that Hong Kong home sales fell to a nearly two year low in June as Hong Kong homebuyers face the prospect of more expensive mortgages due to US interest rate hikes.

K Wah Win

Having bested bids from top local developers including Wheelock Properties and CK Asset, K Wah is set up to build as much as 42,978 square feet (3,992.8 square metres) of gross floor area on the Hospital Road plot. At the tender price, the developer is paying the equivalent of HK$12,821 per square foot of GFA.

Upon completion of the housing project, K Wah is expected to develop the 5,372 square foot site into about 100 residential units, worth as much as HK$1.1 billion, said Alex Leung, senior director at CHFT Advisory and Appraisal.

The project is restricted to residential use, with the developer required to build flats of no less than 280 square feet (26 square metres) of saleable area each, according to tender documents from the Lands Department.

While the Hospital Road site attracted 11 bids in total, Swire had to top 20 competing tenders, including offers from Sun Hung Kai Properties and Henderson Land, to win its project on Queen’s Road East in Wan Chai last month.

Analysts pointed to the location and characteristics of the site in explaining the more subdued bidding for this latest plot.

“Although the distance to the Sai Ying Pun MTR station may seem close, the site is accessible through a continuous uphill hike along Hospital Road,” said Hannah Jeong, head of valuation and advisory services at Colliers, who noted that the quality of the site may have dampened developer enthusiasm.

Other challenges for the winning bidder include requirements for the preservation of a stone retaining wall facing Hospital Road along with trees which have grown atop the aging structure, according to the tender documents.

Although analysts highlighted that there are no new developments in the immediate vicinity of the site, CHFT’s Leung noted that Hong Kong’s Sai Ying Pun neighbourhood – which Hospital Road directly links to – will see 1,500 new homes completed during 2022.

Jeong also pointed out that with the gaming and hospitality industries around Hong Kong still bearing the brunt of the region’s COVID Zero policy, buyers like K Wah may have had extra incentive to enter the residential market.

With companies like Paliburg Holdings Limited and Regal Hotels International Holdings also making offers for the site, Jeong said that, “Some (bidders) are not traditional residential developers,” while noting this may indicate that, “the residential market is a better bet than other sectors for investors.”

Pipeline Expansion

For K Wah the Hospital Road project is located close to 30 Po Shan Road, a site in the Mid-Levels where it is developing a 39,826 square foot residential complex in a 50:50 joint venture with Chuang’s Consortium International Limited. That project is expected to be completed, at the earliest, in 2024.

Beyond Hong Kong Island, K Wah is working together with Sino Land and China Overseas Land and Investment (COLI) to develop the Grand Mayfair II condo project in the New Territories, with the joint venture partners having sold 249 of the 288 flats made available during their second round of sales in May.

K Wah also holds a 40 percent stake in a joint venture with Wheelock Properties and COLI which is developing the largest residential project on the former Kai Tak airstrip. The joint venture partners purchased that site for HK$12.74 billion in 2019 with the project scheduled for completion within the next two years.