CK Asset Pays HK$4.95B for HK’s First Public–Private Residential Project

A property conglomerate chaired by the son of Hong Kong’s richest man, Li Ka-shing, has won a tender to develop the city’s first residential project combining private and government-subsidised homes.

The city’s Lands Department announced yesterday that it had awarded the land parcel in the Kwun Tong area of Kowloon East to CK Asset Holdings on a 50-year land grant at a premium of HK$4.95 billion ($638.8 million), with experts calling the sale a boost to market confidence despite its budget price.

“The winning bid is slightly lower than expected, while the result is still encouraging as there was no tender withdrawal this time under the current situation,” said Thomas Lam, executive director at Knight Frank.

The land award comes a week after the government cancelled a commercial land sale on Hong Kong’s former airport at Kai Tak after all four bids submitted fell below the auction reserve price, as a survey by a property industry body shows real estate professionals in the city expecting home prices to drop a further 1 percent by the end of 2020.

Deal Restrictions Dampen Demand

CK Asset won out over eight competing bids, with solo offers coming from the likes of COLI, Sino Land, K Wah International, and Wheelock Properties. A Henderson Land-led consortium was also vying for the opportunity to develop the 217,076 square foot (20,167 square metre) slice of Kowloon East.

Under the terms of the tender, the Hong Kong-listed developer is required to sell at least 1,000 of the expected 1,700 units in the project to first-time home buyers from the city’s middle class at 80 percent of market value.

Located more than 40 minutes by bus from Kwun Tong MTR station on Anderson Road, the site is designated for private residential use and can yield up to 1.09 million square feet of gross floor area.

Based on the HK$4.95 billion land premium, CK Asset has added the land parcel to its pipeline for the equivalent of HK$4,546 per square foot of buildable area, or 62 percent less than the HK$12,003 per square foot that competitor Chinachem Group paid for an adjacent parcel on the same street in January 2018. 

The winning tender came in near the low end of the HK$4.6 billion to HK$9 billion price range which surveyors had predicted for the site, with Knight Frank’s Lam indicating that the large investment required to develop the project, as well as the burden of providing affordable housing, may have weighed on bids.

CK Asset’s total investment in the project is expected to be between HK$9 billion and HK$9.5 billion, while the private flats are expected to fetch HK$15,000 per square foot, according to Lam.

Developing Starter Homes

According to the land sale conditions, CK Asset is required to build units no smaller than 250 square feet and no larger than 500 square feet. 20 percent of those homes must be studio units, with another 25 percent constructed as one-bedroom units and the remaining 55 percent two-bedroom units.

Under the terms of the award, the 1,000 subsidised units, which are being built under the government’s Starter Homes Pilot Project, have to be sold after completion of the project but before the private housing units are put up for sale.

Knight Frank’s Lam said that, despite these stringent requirements, the land sale’s positive market response – as measured by the number of bids – might encourage the government to include affordable housing in future land sales.

“The government might be inclined to add starter homes to the terms of other suitable land parcels, such as those in the northeast of the New Territories, so as to leverage resources from the private sector to speed up provision of subsidised housing,” he noted.

Bleak Residential Market Outlook

A weakening economy that saw the Asian financial hub’s gross domestic product slide by 8.9 percent during the first three months of 2020, compared with the same quarter a year earlier, has slowed home sales and reduced developer appetites for land.

With the first three months of 2020 marking Hong Kong’s worst quarter on record the government’s decision to cancel the sale of a commercial site in the Kai Tak area last week led analysts to comment that developers are becoming more cautious about making long term capital commitments.

The results of a survey released today by the Hong Kong chapter of real estate industry body the Royal Institute of Chartered Surveyors (RICS) showed that while sentiment has begun to improve, members of the group responding to the poll indicated that demand for new homes continued to retract in April, with prices expected to fall another 1 percent by the end of 2020.

Last month, Hong Kong developer Chinachem Group won a tender to develop a residential project in Sham Shui Po for HK$912.8 million – around 9 percent below the average market estimate of HK$1 billion.

Citing uncertainty in the market, Goldin Financial Holdings just over a week ago offloaded a 9,708 square metre residential site at Kai Tak at a loss of HK$2.6 billion, after the firm had acquired the plot for HK$8.9 billion in November 2018.