New World Buying Guangzhou Site Next to China’s Largest Amusement Park for $690M

New World Development last week announced to the Hong Kong Exchange that it is buying a 65 percent stake in a site in Guangzhou, next to the country’s largest amusement park, for a total consideration of over RMB 4.78 billion ($690 million).

The Hong Kong home-builder acquired its stake in the project, which is approved for construction of a residential and commercial complex measuring up 290,000 square metres (3.1 million square feet) of gross floor area, from Guangzhou Metro Corporation, which finished construction of the metro station beneath the property in late 2016.

New World’s latest investment in Guangzhou comes just over one year after it agreed to invest RMB 2.09 billion to acquire a plot in the capital of Guangdong province. Adrian Cheng, an executive director of New World and the third generation leader of the company, earlier this year said the developer would invest as much as RMB 20 billion into enriching the company’s land bank in first and second-tier cities in southern China.

Buying into a Connected Location

In its statement to the stock exchange, New World cited the project’s location at the junction of Guangzhou metro lines three and seven, as well as its connection to the still-under-construction Foshan–Dongguan Intercity Railway, as offering the advantage of improved connectivity with Guangzhou’s Zhujiang New Town, the city’s South Railway Station and other hubs in the area which has become the target of the government’s Greater Bay Area initiative.

The 70,936 square metre site for the project, which includes a construction site area of 58,027 square metres, is located above the Hanxi Changlong metro station in the southern part of Guangzhou. Under the terms of the agreement with New World, the municipal metro operator will retain the remaining 35 percent stake in the project, as the two parties agree to jointly develop the project.

In return for its stake in the joint venture, New World agreed to pay Guangzhou metro total consideration of RMB 4.781 billion with nearly RMB 303 million to be paid for acquisition of the equity stake and the remaining RMB 4.48 billion committed for assumption of shareholder’s loans owed by the project company to the parent firm.

Before New World invested, the project had already been approved by the local government to build a 290,135 square metre complex, including residential apartments, office, and retail space.

New World, which also provided guarantees of rental income to Guangzhou metro as part of the deal, said that it would, “fully utilise its strengths and ample resources of diversified business and comprehensive commercial operations, and cooperate with the Vendor to turn the project into a landmark of smart commercial and residential complex in the southern part of Guangzhou and to promote the upgrade of auxiliary facilities in the region.”

Building a Mall Next to the Amusement Park

According to the sale and purchase agreement, the commercial section of the development will be finished by the end of May 2022 and the retail mall should be launched within one year after the commercial component is completed.

In addition to being a major interchange, the Hanxi Changlong metro station where the project is located is the closest metro station to Chimelong Paradise, a 60 hectare amusement park in Guangzhou’s Panyu district, which is currently the largest largest amusement park in China.

Once New World’s new project is completed, the developer, which also operates the art-driven K11 shopping centres, will have a controlling stake in a mall which could attract shoppers from among the ten million tourists said to visit Chimelong Paradise annually.

Expanding a Pipeline in the Greater Bay Area

As top officials in Hong Kong and mainland China push a plan to integrate the 70 million people in living in Guangdong province with Hong Kong and Macau, New World is looking for opportunities to benefit from growth in a region which HSBC predicts will, together, become a $2.8 trillion economy by 2025.

New World Development, which is led by second-generation patriarch Henry Cheng and his son Adrian Cheng, currently has a land bank of nine million square metres in China with 40 percent of that pipeline located in the Greater Bay area.

Adrian Cheng said in an interview earlier this year that the company will put another RMB 16 billion to RMB 20 billion to acquire lands and projects in southern Chinese cities, with the Greater Bay Area being a primary target.

Last October, the company paid RMB 2.09 billion to acquire a plot of land in the Zengcheng district of Guangzhou, where it plans to build a 250,000 square metre mixed-use project.