K Wah Joint Venture Buys Site in Shanghai’s Xuhui District for $516M

Despite the gloomy outlook for the mainland property market K Wah International Holdings teamed with two state-owned partners in a government land sale to purchase a mixed-use site in Shanghai’s Xuhui district for the reserve price of RMB 3.73 billion ($515.8 million).  

The group controlled by Hong Kong’s fourth-wealthiest man, Lui Che-woo, along with its partners is set to build a 195,800 square metre (2.1 million square foot) complex according to a stock exchange announcement. 

The project will combine commercial and residential space in a transit-connected site in the southern tip of Xuhui district and K-Wah stressed the importance of this transport connectivity when it announced the deal. 

“The land acquisition represents an excellent investment opportunity for the group to be engaged in a transit-oriented development to expand its presence in the Shanghai property market, replenish the group’s land bank and is in line with the group’s business development strategy and planning,” the developer said.

Betting on an AI Cluster

The land is situated at the Huajing Town development zone in southern Xuhui district, which targets development of artificial intelligence and life science industries, and will yield 195,800 square metres in total gross floor area, according to the stock exchange filing. 

It is designated for mixed usage including residential, office, retail, F&B and hotel, the developer said. K Wah’s offer for the site is equivalent to RMB 19,000 per square metre.

K Wah’s development will be part of an all-encompassing 813,000-square-metre mega complex called Huazhimen (Hua’s Gate) above the West Huajing metro station. The area is close to a developing industry cluster known as AI Town and a planned life science zone dubbed ‘West Bund Maple Bay’.

The developer will build 88,875 square metres of office space, 40 percent of which must be held for the long term. The developers will also construct up to 50,000 square metres of hotel space, and 9,250 square metres of retail, according to the terms of the land sale. 

The development will also include 47,715 square metres of residential space which carries a price cap of RMB 81,000 per square metre. 

The Hong Kong-based firm is establishing a joint venture with state-backed firms Shanghai Longhua Property Company Limited and Shanghai Huicheng Property Operations and Management Company Limited to develop the site. 

A K Wah subsidiary will hold a 60 percent stake in the JV, and Shanghai Longhua and Shanghai Huicheng will take 35 percent and 5 percent, respectively.

Single-Bidder Auction

K-Wah and its partners won the auction for the 45,302.87 square metre Xuhui site in late September, with that purchase coming shortly after China’s statistics bureau said that sales of non-subsidized housing dropped by 27.9 percent in the first eight months of the year, compared with the same period in 2021.

Despite these negative numbers James Macdonald, Head of Savills Research China, told Mingtiandi that the outlook for the property sector in China was positive in certain areas.

“The land development market is challenging given much tighter developer financing, and a cooling economy and property sector. Key cities such as Shanghai, Beijing and Shenzhen, however, still attract interest given their economic diversity, deep talent pools, and strong support from well-financed local governments.” 

The issues facing major Chinese developers such as Evergrande and Sunac also means that K-Wah and its partners faced no competition for the plot with records from the Shanghai Real Estate Exchange Center showing the K Wah consortium was the sole bidder.

Connected Location

The site is will link to the existing West Huajing metro station on Line 15 which was launched in early 2021 and another two connections, to Line 19 and an airport link  are under construction. 

Shanghai is also planning to build another metro line (Line 23) which will have an interchange with Line 19 just one stop from West Huajing station.

“Once these lines are officially opened, the connectivity in and around the site area will be highly strengthened, which should elevate the site’s TOD credentials. Besides new metro line construction, the road network to and from the site will also be improved,” Shaun Brodie, a senior director at Cushman & Wakefield Greater China, told Mingtiandi.

“Even though some developers are taking a conservative stance in land acquisition, plots in core areas in the city and plots close to the mature transportation hubs, or hubs that have the potential to strengthen their transportation links, are still appealing,” Brodie added.

Traditionally known for the Xujiahui commercial hub and leafy boulevards, development in Xuhui has shifted isouthward in recent years as the Chinese government encouraged tech firms to set-up in Xuhui Binjiang.

Tech Titans 

Chinese e-commerce firm Alibaba has spent RMB 7.5 billion to acquire two plots in the area also known as the “West Bund” to host its east China headquarters. 

Another big name in the area is SenseTime, a leading Chinese AI firm which in January bought 23 floors of the AI Tower in Xuhui as its local headquarters.

K-Wah isn’t the only foreign firm looking to invest in the area. Hongkong Land paid a record RMB 31.05 billion ($4.48 billion) for the 1.1 million square metre West Bund Financial Hub project in 2020 and in June spent another $700 million to purchase a residential site in the area which will yield 526 homes.

The average price of homes in the West Bund or Xuhui Binjiang area is up about 41 percent compared with five years ago.

And according to the latest data from JLL there are signs of recovery in the broader Chinese residential property market which could boost these prices further. 

Pent-Up Housing Demand

The real estate firm says that looser monetary policy by the People’s Bank of China which lowered the loan prime rate for home sales in August has released pent-up demand held in check by Covid restrictions. 

JLL said that total residential sales volumes had risen 188.4 percent versus the previous quarter with a total 3.7 million square metres changing hands over the previous three months.