SC Capital, Lofter Apply to Buy Out $108M Hong Kong Project

Hong Kong’s Lofter Group and Singapore-based SC Capital Partners are moving closer to building a HK$850 million ($108.3 million) residential and retail project in the city, having last month applied to acquire full ownership of a 4,000 square foot (371 square metre) site on Ap Lei Chau Island.

With possession of more than 90 percent of the existing structures already in hand, Lofter and SC Capital have applied for a compulsory sale which could give them the opportunity to buy up the remaining interest in a site spanning 2-4A Ping Lan Street and 26-28 Ho King Street on the islet just south of Hong Kong island, according to local media reports.

The compulsory sale, which is being sought under a Hong Kong law that simplifies redevelopment of properties of 50 years in age or more, values the project within a 2-minute walk from the Ap Lei Chau Promenade at HK$145 million and comes just four months after the partners had announced their purchase of a majority stake in the project.

Lofter and SC Capital are moving forward with a plan to transform the harbourfront site into a 35,000 square foot (3,251 square metre) residential complex atop a retail podium despite a downturn in Hong Kong’s residential market which has seen home prices drop on a monthly basis from January through May, apart from an uptick in April.

Ap Lei Chau Apartments

In February, Lofter and SC Capital estimated that the total acquisition price for the Ap Lei Chau project, which is still in the design phase, could reach more than HK$418 million with Lofter indicating that the project should be complete in 2025.

The site is surrounded by more than 580,000 square feet of park space, according to Lofter founder and chairwoman Carol Chow, and is located within a 3-minute walk of Lei Tung MTR station.

Lofter and SC Capital estimated at the time that the project was announced in February, that given the total acquisition price, they would pay about HK$11,943 per square foot of built area to gain full ownership of the Ap Lei Chau Island site.

“(The project) is suitable for small-sized units averaging 400 square feet of saleable area,” said Alex Leung, senior director at CHFT Advisory and Appraisal. “Each home might sell for HK$13 million, as units would offer open views of the Aberdeen Harbour (Channel) and public garden.”

“New homes in Ap Lei Chau sell for HK$27,500 per square foot of saleable area,” Leung added.

The latest Ap Lei Chau project to hit the market was Henderson Land Development’s The Upper South, which began making units available for sale in May of last year, said the research team at JLL Hong Kong. That project has since achieved an average unit price of HK$25,900 per square foot of saleable area, according to the property firm.

Opportunities in a Downturn

The Ap Lei Chau development adds an eighth project to Lofter’s pipeline in Hong Kong, Chow told Mingtiandi, with the company seeing the current downturn as an opportunity to pick up properties that might not have become available under more favourable conditions.

“Since the social unrest in 2019, followed by the COVID-19 pandemic in 2020, there were more distressed assets on the market, which provided more acquisition opportunities for Lofter to grow its portfolio,” said Chow.

Lofter’s other significant addition to its pipeline this year was revealed in May, when the developer announced that it has teamed up with BentallGreenOak and Schroders Capital to take on a commercial project in the Tsim Sha Tsui area. Lofter and its global partners indicated at the time that they were paying over HK$1.5 billion to acquire a set of properties at 31-37 Hankow Road for the Kowloon project.

Pre-sales for two of Lofter’s redevelopment projects – including a residential development near Mong Kok East, and an industrial property in Tai Kok Tsui – are set to begin in the fourth quarter of this year, said Chow.

Urban Renewal

“Our core strategy is urban redevelopment, so most of our acquisitions are done through (strata-title purchases),” said Chow, noting that even with land offered through tenders by the government, the MTR Corporation and Urban Renewal Authority, opportunities to acquire land in Hong Kong are scarce.

Analysts who spoke with Mingtiandi expect the number of compulsory sale applications to go up by as much as 20 percent in 2022, compared to the year before, citing the relaxation of social distancing restrictions in May, as well as a gradual economic recovery, as inspiring greater confidence among developers.

For SC Capital, the Ap Lei Chau project aligns with the Singapore firm’s opportunistic fund series, Real Estate Capital Asia Partners (RECAP), which focuses on value creation through refurbishing, repositioning and operating real estate assets across Asia Pacific.