Money is not everything, says Hong Kong government as it adopts rare approach to selling prime site in heart of Central

Lilian Cheng

In a vote of confidence in Hong Kong’s property market despite the economic downturn, the government is adopting a rare approach to sell a prime commercial site in the Central business district that will take into account not just developers’ cash bids, but also their proposed designs.

Described as the “last strategic business site in Central” and located next to the International Finance Centre along the harbourfront, it is one of 21 residential or commercial lots on the land sale programme for 2020-21.

While the design requirement was not expected to deter interest, the ailing business environment amid the social unrest and the coronavirus crisis could lower developers’ bids in general by 10 to 15 per cent, according to some analysts.

Announcing the details of the programme on Thursday, Secretary for Development Michael Wong Wai-lun said the government intended to sell the 4.76-hectare New Central Harbourfront Site 3 using a two-envelope approach by assessing both price bids and design proposals from developers. This would deviate from the usual practice of awarding sites based on the highest bid alone.

“If you look at Central as it stands now, this … site is the last site that is so strategically located and iconic,” he said. “Its proper design and utilisation is very important to our future economic development. Money is not our only consideration.”

The plot sits on land reclaimed from Victoria Harbour nine years ago, and has held entertainment and sports events such as the Hong Kong ePrix of Formula E, the Wine and Dine Festival, and carnivals.

The winning developer will be required to devote half of the area to green public space and enhance connectivity between the harbourfront and inner Central.

Such a two-envelope approach was rarely used in land sales, Wong said, noting the last case dated back to 2002 when the Former Marine Police Headquarters in Tsim Sha Tsui, a declared monument, was sold as a business and hotel site, now known as 1881 Heritage.

A lot in Kai Tak is one of five other sites that will provide the highest amount of space offered annually in the past 20 years. Photo: Felix Wong

The Central site, together with five other commercial lots in Kai Tak, Causeway Bay and Tung Chung, will provide 8.9 million square feet of floor space in total, the highest amount offered annually in the past 20 years.

The minister said he still had confidence in the market despite the economic downturn.

“If we look at the records, we have a rather good record of selling various sites, so I will take it easy,” he added. “I am not overly worried.”

Consultancy Knight Frank estimated the site could be sold at a range HK$45.2 billion-HK$54.9 billion (US$5.7 billion-US$7 billion), which would be HK$28,000-HK$34,000 (US$3,600-US$4,400) per square foot.

Pruden Group’s estimate was between HK$73 billion and HK$92 billion (US$9.4 billion and US$11.8 billion), or HK$40,000-HK$50,000 (US$5,100-US$6,400) per square foot.

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Harbourfront Commission member and architect Ivan Ho Man-yiu said the oversight body had discussed the sale of the site a few times already.

“The government will come back to us with the tender requirement. The space should have an original design, which can attract international and local visitors,” he said, adding that foreign investors had shown interest as well.

Rita Wong, head of valuation at Jones Lang LaSalle in Hong Kong, said the site should draw keen interest from developers, despite retail and office markets entering a downward trend.

Thomas Lam, head of valuation and consultancy at Knight Frank, also said he believed the two-envelope approach would not lower developers’ bids, as they were already quite used to submitting designs when bidding for projects outside the land sale programme.

“Rather, it is the economic downturn triggered by the social unrest and coronavirus that will lower their bids [in Central and other sites],” Lam said.

As for residential sites on the programme, 15 lots will go on sale in the coming year, including the high-end Mansfield Road plot on The Peak rolled over from last year and a new one on Queen’s Road East, Wan Chai.

The 15 plots will in total produce 7,530 flats, the lowest in a decade.

“To find an adequate supply of land will always be a key challenge for Hong Kong … government land sales is not the only source, but with railway development projects and private-initiated redevelopment,” Wong said.

Combined, they would form a potential supply of 15,730 flats in the private sector, which would exceed the target under the government’s long-term housing strategy for the year.

For long-term land supply, the government has not given up its Lantau Tomorrow Vision, the controversial plan to create massive, man-made satellite cities west of Hong Kong Island.

Financial Secretary Paul Chan Mo-po said the reclamation would go ahead if budget, engineering and planning studies found it feasible.

“The government does not necessarily shoulder all the construction cost in such a large-scale infrastructure project. We can utilise the capital in the market,” Chan said on a radio programme. “From past experiences, we have been cautious in controlling the cost.”

Additional reporting by Cheryl Arcibal and Kimmy Chung

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