Hong Kong’s Nan Fung Development has outbid 11 rivals to win a commercial site near the former Kai Tak airport for the record-breaking price of HK$24.6 billion ($3.16 billion), according to a statement from the city government late yesterday.
Although no plan for the Kowloon East development has yet been released, the 19,044 square metre (204,988 square foot) site is zoned to allow for commercial development including office, retail and hotel with the government announcement including reference to an underground shopping street to be incorporated into the finished project.
2nd Record-Breaking Land Sale in 2 Weeks
Nan Fung’s purchase sets a new record for the biggest government land sale ever in Hong Kong, surpassing Henderson Land Development’s winning HK$23.3 billion ($3 billion) bid for a car park in the city’s Central district on May 16th. Henderson plans to redevelop that parcel into “a landmark building” that will mainly consist of office space with a retail component, and that purchase still represents the highest price paid to date on a per square foot basis.
The just-auctioned Kai Tak site, New Kowloon Inland Lot No. 6556, will yield a project with a gross floor area of up to 177,670 square metres (1,912,424 square feet). In 2010, Nan Fung Group, which has completed a large portfolio of high end residential projects in Hong Kong, finished work on the 28-storey Octa Tower, one of the earliest of a new generation of Grade A commercial buildings in the Kowloon East neighborhood.
The privately-held developer’s Kowloon purchase comes just over two weeks after a joint bid by mainland home builders KWG Property Holdings and Longfor Properties beat 15 rivals to win a residential site in the Kai Tak area for HK$7.3 billion ($938 million).
Mainland Developers Stick to Residential in Kai Tak
Similar to Henderson’s bid for the car park project on Murray Road, Nan Fung won the Kai Tak site in a competition with mainly local developers, including Cheung Kong Property Holdings, Sun Hung Kai, Wharf Holdings, Chinese Estates, and New World Development Company Limited. Shimao Property Holdings and China Overseas Land & Investment were the only mainland developers to submit bids.
“PRC interest in the commercial sector has primarily been focused on opportunities in the CBD, so no real surprise with the low level of bidding for this latest Kai Tak site,” commented Denis Ma, head of Hong Kong research at international property consultancy JLL.
From November 2016 through March of this year mainland conglomerate HNA invested HK$27 billion ($3.5 billion) at Hong Kong land sales to purchase four adjoining Kai Tak residential sites totalling 36,865 square metres (396,811 square feet) at record-breaking prices.
Investing in a Kowloon East Commercial Hub
Nan Fung’s new site is part of the Hong Kong government’s Kai Tak Development plan for the 320-hectare former industrial area. The development project, which fronts Victoria Harbour in East Kowloon, was home to Hong Kong’s international airport until 1998. The city government has been investing in infrastructure in the area, and providing incentives for conversion of industrial buildings, in the hope that Kowloon East will grow into a commercial hub serving as an alternative to the traditional downtown and accommodating an increased population of around 90,000 residents.
Ma pointed out that the site’s accommodation value of HKD 12,864 ($1,651) per square foot – the selling price divided by the maximum gross floor area of the proposed project – greatly exceeds that of the last commercial site sold in Kai Tak. In November 2016, department store operator Lifestyle International Holdings acquired a large commercial parcel in the area for HKD 7.39 billion, with plans to build a mixed-use twin tower project. However, said Ma, the site bought by Nan Fung “is arguably in a slightly better location given it will have direct access to the future Kai Tak MTR station.”
“Within Kowloon East, Kai Tak is likely to benefit the most from the completion [of the] future Shatin-Central Link, which will reduce travelling time to Central to within 15 minutes. The line is expected to open by 2021,” Ma added.
The Kai Tak area has become a hub of commercial development and investment in recent years with Hong Kong-base real estate investment house Phoenix Property Investors successfully flipping its Kwun Tong View office project to a local private investor last month for $225 million (HK$1.99 billion).