Hong Kong developer Tai Cheung Holdings last week won a residential site on the city’s Ap Lei Chau island with a bid more than 14 percent above some analyst predictions, despite forecasts of slide property values in the city.
The 64-year-old builder led by David Pun Chan agreed to pay a land premium of HK$$1.33 billion ($170 million) for the site just south of Hong Kong Island, according to an announcement by the city’s Lands Department, in a move seen as an endorsement of the future of the housing market.
“The site was sold at a better-than-expected price, while receiving the strongest response for a site offered for government tender so far this year,” said Knight Frank’s head of valuations and advisory in Hong Kong, Thomas Lam, who added that the bid reflected developers’ “confidence in the luxury market outlook in urban areas” of the city.
Targeting Hong Kong’s Luxury Market
Knight Frank had forecast a price of HK$1 billion to HK$1.14 billion for the project, which is approved for construction of up to 88,281 square feet (8,201 square metres) of housing, making the winning bid equivalent to HK$15,097 per square foot of space.
Tai Cheung got the better of eighteen competing bids, including solo tenders by local giants Sun Hung Kai Properties, Wheelock and Company and Sino Land. Mainland heavyweight China Overseas Land and Investment also made an offer for the site, and Henderson Land Development led a consortium bid.
Located 13 minutes’ walk from the Lei Tung MTR station on the South Island Line, Knight Frank said that Tai Cheung’s Ap Lei Chau prize is likely to yield luxury homes that sell for around HK$28,000 per square foot after the company invests a total of HK$2.2 billion and HK$2.6 billion developing the project..
With a clear view of Aberdeen South Typhoon Shelter, the site on Ap Lei Chau Praya Road sits next to luxury residential development Larvotto – co-developed by Sun Hung Kai, Kerry Properties and Paliburg Holdings – which stretches along the eastern shore of the island.
“As the site is elongated in shape, it is estimated that the developers will mainly develop medium-sized units so that more units can enjoy the sea view,” Lam added.
Despite exceeding analyst projections, Tai Cheung’s purchase still equates to 32 percent less per square metre than the most recent previous land sale on Ap Lei Chau, which dates from more than three years ago. In that February 2017 tender, mainland developer Logan Property agreed to pay HK$16.86 billion for a 126,594 square foot residential site, or the equivalent of HK$22,118 per square foot.
Hong Kong Real Estate Pioneer Makes a Comeback
The land purchase marks something of a comeback for Tai Cheung, which was first founded as a construction by David Pun Chan’s father, Edward Chan Tak-tai in 1956.
In the company’s heyday during the 1960s and 1970s, Tai Cheung Holdings was known as one of the “Five Tigers of Chinese Developers” in Hong Kong, and created a joint venture with Hutchison Group, now part of Li Ka-shing’s CK Asset, to open Central’s Hutchison House in 1974.
Also in the 1970s, Tai Cheung worked with Swire Group to begin converting the latter company’s Tai Koo Dock in Quarry Bay into what became the first phase of Taikoo Shing. Swire later bought out Tai Cheung’s stake in that joint venture when it formed Swire Properties.
Failing to Sell Luxury Property on the Peak
Tai Cheung’s Ap Lei Chau win comes two months after the developer released the sales brochures for its latest luxury project at 108 Repulse Bay Road, although the company has yet to hold a formal sales launch. Comprising eight detached houses, the super-luxury Repulse Bay properties, which are expected to fetch upwards of HK$80,000 per square foot, overlook one of Hong Kong’s most scenic beaches in the neighbourhood popular with celebrities and business tycoons.
The developer has not been discouraged by the lack of success at its debut luxury project at 3 Plunkett’s Road, located in Hong Kong’s exclusive Victoria Peak area, which has only sold one out the six townhouses which comprise the development, with five of the properties remaining empty since that sale in 2011.
In 2018, Tai Cheung offered to sell the five unsold townhouses collectively at an asking price of HK$2.34 billion, but has yet to conclude a deal, according to publicly available information. The single, 4,893 square foot property the developer had succeeded in selling nine years ago fetched HK$399.8 million, or HK$81,709 per square foot, according to a local news report.
Sliding Prices in Southside and Ap Lei Chau
Tai Cheung’s optimism in Ap Lei Chau comes as Hong Kong’s weakening economy and political tensions have sent luxury residential prices on a downward trend as investors shy away from big ticket purchases, according to property consultancy Savills.
Average luxury townhouse prices in Southside and Ap Lei Chau fell by 2.5 percent during the first three months of this year compared with the last quarter of 2019, according to the consultancy’s most recent data. That decline followed a steeper 3.4 percent slide from the third quarter of 2019 going into the last three months of the year.
Despite this downward trend, the Savills said that low interest rates and a low number of newly completed projects may prevent prices from more drastic falls.
“Areas traditionally popular among mainlanders have seen prices fall most but elsewhere values are holding up remarkably well,” said Savills’ senior director of residential development and investment in Hong Kong, Patrick Chau, adding that there had been some evidence of distressed selling.