Hong Kong developer Chinachem won its third government land sale in 15 months late last week when it took advantage of a tepid development market to pick up a commercial site near Hong Kong’s international airport at a bargain price, according to an announcement by the city’s Lands Department.
Chinachem bested four other developers to win the rights to develop up to 1.3 million square feet (121,000 square metres) of space on the site in Lantau Island’s Tung Chung area for HK$2.78 billion ($350 million). That acquisition came at a rate below most analyst projections despite the government having revised the tender conditions to allow for data centre development as well as office and retail, following a failed attempt to auction the land in 2020.
“Given the developer will have high flexibility to use the land for data centre and office or retail, our firm expected the price could be between HK$4 billion and $4.4 billion,” said Alex Leung, senior director at local surveying firm CHFT Advisory and Appraisal Ltd.
Leung said that other analysts had estimated premiums for the site from HK$5 billion down to HK$2.8 billion, putting the final sale price below expectations as Hong Kong’s developers showed limited appetite for a commercial project near an airport that has been transformed from a bustling transport hub to a little-used shell by the city’s strict quarantine policies and flight bans.
Tung Chung Reclaimed
Chinachem’s top leadership sees its bet on Tung Chung Town Lot 45, a 132,773 square foot plot near the planned Tung Chung East MTR station, as a way to leverage the government’s development plans for the newly reclaimed Tung Chung New Town Extension, which is expected to be completed by the end of next year.
“Tung Chung East will be developed into a new town by the government in line with its Tung Chung New Town expansion plans,” Chinachem CEO Donald Choi said in a release. “The site is also adjacent to the Hong Kong-Zhuhai-Macao Bridge and Tuen Mun Chek Lap Kok Tunnel, enjoying the advantage of excellent connectivity with Guangdong province and Macau. Given these factors, we are confident about this project and plan to develop shopping malls, offices and a data centre.”
Chinachem is paying the equivalent of HK$2,202 per square foot of accommodation for its Lantau Island site, with a brief on the tender from property consultancy Savills citing a pre-tender valuation range of HK$2,200 to HK$4,000 per square foot for the plot, which is eligible for development on a strata title basis and is expected to be connected to the upcoming MTR station via a footbridge.
Other bids for the 50-year land grant parcel 15 minutes’ drive from the Hong Kong airport came from local developers CK Asset Holdings, K Wah Properties, K&K Property and Sino Land, the Lands Department said. Upcoming land tenders will make available residential, hotel and additional commercial projects in the Tung Chung East area.
Second Time Lucky
The Tung Chung site was initially put up for sale by the government in 2020, but the tender was withdrawn in October of that year after all three bids submitted failed to meet the government’s reserve price. The contestants in that round were CK Asset, Sun Hung Kai Properties and a joint venture of Sino Land and Kerry Properties.
Since that earlier attempt, the Lands Department revised the terms of the tender to increase the site’s appeal by adding permission to develop the site entirely for data centre use as the city’s market for server facilities continues to boom.
However, CHFT’s Leung sees the site as a difficult fit for data centre purposes. “It reflects that the data centre operators/developers are not willing to invest in land with a long constructing period,” he said. “The subject land is located in a newly reclaimed area where infrastructure is not yet readily available.”
Other changes to the tender included removing the cap on office use, whereas the previous tender had allowed for no more than 91 percent office accommodation, and the added flexibility also permits boosting the cap on retail development to 30 percent from 9 percent in the earlier tender.
Chinachem has been the most active player in Hong Kong’s government land sales market since 2021, winning three development sites for a combined HK$12.06 billion, according to data compiled by Savills.
In addition to the latest triumph, Chinachem and joint venture partner Hysan Development bested five other bidders last May to secure a Causeway Bay commercial site for HK$19.8 billion ($2.6 billion), with Chinachem’s 40 percent stake accounting for HK$7.91 billion of the amount.
The partners plan to develop a premium commercial building with community facilities on the 159,327 square foot site near Hysan’s Lee Garden Six commercial tower on Leighton Road, with a maximum allowable gross floor area of 1,076,390 square feet.
In December, Chinachem entered the winning bid of HK$1.37 billion for a New Territories residential site on which it plans to build a mixed development of low-density houses and apartments. The 150,716 square foot site in Tai Po Kau can yield a gross floor area of 226,000 square feet.