SEA Holdings Pays $79M for Hong Kong Build-to-Rent Project

Hong Kong’s SEA Holdings this week acquired its second luxury residential site in four months, and is on the way to building a HK$900 million ($114.6 million) housing project targeting wealthy mainland tenants in the city’s Jardine’s Lookout neighbourhood.

Having paid a total of HK$627 million to acquire full ownership of Loong Fung Terrace, an ageing residential block on Tai Hang Road, the local developer now plans to develop up to 22,000 square feet (2,043 square metres) of luxury rental housing on the Hong Kong Island property.

The company’s decision to develop the property on a build-to-rent basis rather than for sale as condos reversed an earlier plan, with SEA noting a recent exodus of senior professionals and the city’s closed borders as driving its decision to hold the property for the long term.

“Since the beginning of this year, there have been increasing reports of professionals and senior management people who are upper-income and high-net worth individuals leaving Hong Kong and might not return again,” the company said in its announcement to the stock exchange. “Further, the opening of the border with China was delayed due to COVID-19 pandemic.”

Lookout Luxury

With high-end residential prices on Hong Kong island having slid 1.7 percent during the first quarter, according to Savills, SEA acknowledged a slip in demand for high-end properties and also pointed to the Russia-Ukraine war as denting buyer confidence in explaining its rationale for pursuing a rental strategy. At the announced consideration, SEA Holdings is paying the equivalent of HK$28,000 per square foot of floor area for the residential property.

Spanning an 11,000 square foot site on 89-93 Tai Hang Road, the Loong Fung Terrace is located less than 15 minutes’ drive from both the Hong Kong Jockey Club in Happy Valley, and the MTR Wan Chai station, with analysts pointing to the future value of the project as a luxury housing asset.

“Situated on a rare residential lot in Jardine’s Lookout, a prestigious location for the rich and famous to set up homes, the property enjoys good prospects and thus the attention of developers,” said Peter Yuen, managing director and head of investment and sales at Savills Hong Kong, which brokered the sale of the property.

Leasing rates for residential properties in Jardine’s Lookout currently fall within the HK$40 to HK$60 per square foot per month range, said Cyrus Fong, senior director for valuation and advisory at Knight Frank. Depending on the size of completed units, monthly rents for SEA Holdings’ project could be in the HK$60 per square foot range or higher, he added.

“Considering the location of Tai Hang as a traditional luxury residential area, we expect SEA Holdings to build slightly larger units (averaging) 1,000 to 1,500 square feet in size, with a total of approximately 15 to 20 luxury flats,” said Fong.

Jardine’s Lookout, home to billionaires such as Joseph Lau of Chinese Estates, Gordon Wu of Hopewell Holdings, and family members of Hong Kong’s late “King of Gambling” Stanley Ho, is an affluent residential area located less than 5 kilometres (3.1 miles) downhill from Wheelock’s Mount Nicholson project, which has repeatedly set records for Hong Kong’s most expensive homes.

In the same neighbourhood, Nan Fung Development, which co-developed Mount Nicholson with Wheelock project, last year acquired 17 units at Jardine Court for a potential redevelopment project through a series of purchases that totalled over HK$1 billion.

Civil Servants Sell Out

On the sales side, new homes in Jardine’s Lookout trade for at least HK$70,000 per square foot of floor area, said Tommy Chan, senior director of investment and sales at Savills. “Not many transactions are recorded in (the area) each year, due to low housing supply, though the area enjoys accessibility to Central district and Causeway Bay.”

Should SEA Holdings choose to sell homes in the project rather than hold the property for long-term investment, the per-square-foot price of each unit could cost between HK$40,000 and HK$50,000, said Knight Frank’s Fong.

The developer had won full ownership of the property from the Civil Servants Cooperative Building Society (CBS) Scheme – which governs homes built under an initiative to house civil servants in Hong Kong. Under the scheme, civil servants were granted land at a premium about a half or one-third of its full market value to build homes, though legal titles to the land and residential building were held by the CBS.

Selling the project required consent from at least 75 percent of the CBS members, as well as payment of a land premium to the government to remove restrictions from transferring their interest in the property.

“In this case, we’ve gathered all the interests of the individual unit owners, and submitted applications to the government for premium assessment,” said Chan, who noted that the HK$627 million acquisition cost included both the land price and premium.

That price was not far from market expectations of around HK$660 million, or HK$30,000 per square foot of floor area, said market sources who spoke with Mingtiandi.

Taste for Luxury

SEA Holdings has been actively acquiring housing projects in Hong Kong’s traditional luxury areas in recent years, said Savills.

In February the developer paid a record high price of HK$62,355 per square foot to acquire a luxury residential site on South Bay Road in Hong Kong Island’s Repulse Bay at a government land sale where it is entitled to build up to five fully detached homes.

The developer helmed by tycoon Lu Wing Chi and his son Lambert Lu already has some experience with high-end sites in Hong Kong island, including its 1 Shouson Hill Road East. Last July a home in that villa project on Shouson Hill traded for more than HK$91,000 per square foot and a nearby unit in the same project sold for HK$79,036 per square foot during the same month.