CK Asset Buys Re-tendered Tuen Mun Residential Project for $586M

CK Asset Holdings has topped four competing bids to acquire a residential development site in Hong Kong’s New Territories for HK$4.6 billion ($586 million), according to an announcement published on Wednesday.

The developer controlled by billionaire Li Ka-shing acquired the rights to build up to 1.3 million square feet (120,773 square metres) of gross floor area of new homes on the site in the Tai Lam section of Castle Peak Road, because of its confidence in the prospects of Hong Kong’s real estate market, said CK Asset executive director Justin Kwok Hung Chiu in a statement.

The purchase came through a second government tender for Tuen Mun Town Lot 561 after authorities cancelled their attempt to sell the same plot in April when a set of five bids, from CK Asset and four rivals, failed to deliver a price which met official expectations for the project, which could yield more than 2,500 housing units in the far western reaches of the New Territories.

With Hong Kong’s housing market in the midst of one of its steepest slides on record, CK Asset’s winning bid came in more than 20 percent below the lower end of analyst expectations, which were in the HK$5.9 billion to HK$6.3 billion range according to Alex Leung, senior director at CHFT Advisory and Appraisal. That valuation was already 17 percent lower than the firm’s expectations of HK$7.2 billion to HK$8.5 billion for the tender six months ago.

Large Project, Big Challenges

Kwok estimates that CK Asset’s investment in the project, including land and development costs, will total HK$13 billion, noting the project’s large scale and construction challenges.

CK Asset’s bid for the 362,884 square foot parcel is equal to HK$3,538 per square foot of GFA, with the developer’s bid surpassing offers from Sun Hung Kai Properties and Henderson Land Development, both of which also entered the April tender for the project.

Upon completion, CK Asset’s residential project could be worth from HK$13 billion to HK$15 billion, said Hannah Jeong, head of valuation and advisory services at Colliers Hong Kong.

Should flats in the development average 450 square feet of saleable area each, a unit could sell for as much as HK$7 million, said Leung, with Colliers’ Jeong estimating that the site will yield more than 2,500 homes.

Small to medium sized apartments in the Tai Lam area currently sell for around HK$14,000 per square foot, said Leung. In June, flats at Grand Jeté on 170 Castle Peak Road – developed by CK Asset and Sun Hung Kai Properties – were put up for sale at an average of about HK$15,000 per square foot of saleable area, Leung said.

CK Asset is acquiring its Tuen Mun site at a discount, with the lower-than-expected tender amount largely due to the size of the development, as well as risks arising from economic uncertainty and interest rate hikes, said Vincent Cheung, managing director at Vincorn Consulting and Appraisal.

In the first three quarters of 2022, the number of residential transactions in Hong Kong fell by 40 percent compared to the same period last year to total just 37,620, said Colliers’ Jeong. Earlier this week, data from property agency Centaline predicted that the property sales across all sectors in Hong Kong will reach just 65,000 transactions this year, marking a record low since the firm began keeping records in 1996.

Though the site had failed to sell in its previous tender, the Tuen Mun Town Lot 561 was notable for being the first sale site to carry the minimum flat size requirement of 26 square metres (280 square feet) introduced by the government in December of last year.

CK Boosts Pipeline

The tender win allows CK Asset to expand its Hong Kong land bank by about 7 percent, with the developer having added 5 million square feet to its pipeline in the city through acquisitions during the firs six months of the year.

The acquisition also comes despite speculation regarding the strength of CK Asset’s balance sheet, after the developer last month announced the HK$20.8 billion flash sale of its 21 Borrett Road project in Hong Kong’s Mid-Levels.

In August, the developer sold a house at its 90 Repulse Bay Road project for HK$75,000 per square foot, which set a record for the lowest unit price at the luxury property. Within that same month, CK Asset agreed to sell its Stars of Kovan mixed-use project in Singapore to Fortune REIT, a Hong Kong-listed trust under its sponsorship, for S$88 million ($61 million).

Late last month, Bloomberg reported that the developer has been stung by souring bets in the UK, a market accounting for almost a third of CK Asset’s revenue, with Li Ka-shing’s business empire losing $1.5 billion in one day after the pound’s 26 September crash.