Hong Kong’s biggest developer by value, Sun Hung Kai Properties, and Chinachem Group said they may bid for a prime plot of commercial land to be sold via a rare tender process that takes into account participants’ design plans as well as cash bids.
The government is using a “two-envelope” approach for the sale of New Central Harbourfront Site 3, meaning the winner will be determined by assessing both price and design proposal. This deviates from the practice of awarding sites based on the highest bid alone, which has been used consistently for the last 18 years.
The 516,000 square-foot parcel is next to the International Finance Centre, and was described by one property agent as the rarest and “most precious” plot to go on sale since the development of that landmark tower.
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Of 11 major developers polled by the South China Morning Post, only SHKP and Chinachem – both frequent participants in local land sales – said they were interested in the parcel.
“It is a very important site in Central. The two-envelope system will give us bidders not only price competition, but also [competition in] the design and project layout to show the thoughts and advantages of every competitor,” said Donald Choi, chief executive at Chinachem Group.
The last time the government used this sales method was in 2002 when it sold the former Marine Police headquarters, now the address of 1881 Heritage in Tsim Sha Tsui.
“[Developers] have to be very confident about Hong Kong’s prospects and have commitment because the payback period is relatively long,” Choi added. Knight Frank estimates the payback period for the site – the amount of time it takes to recover the cost of an investment – is about 25 to 30 years.
A spokesperson for the Development Bureau said: “Our vision is for it to become a new landmark for Hong Kong, setting a benchmark for people-centric design with emphases on sustainable and urban design considerations as well as integration with the surroundings.”
Choi believes the bids for the plot will be subdued by the gloomy state of the city’s office market, as the coronavirus pandemic has dented demand by making remote working far more popular.
“Covid has sped up the impact of technology on the office sector. So I think everyone will consider how office demand will be in future,” he said. “Hong Kong is also developing different central business districts in Kwun Tong and in the Lantau Tomorrow Vision, which will increase supply.”
The tender period will last for six months, closing on June 18, 2021, allowing sufficient time for bidders to prepare their design proposals.
Centaline Commercial expects that when the tender closes in June, the overall business atmosphere and investor confidence will be on the rebound.
It values the site at HK$38,000 (US$4,901) per sq ft, about HK$61.1 billion in total, a 25 per cent discount to the Murray Road car park site that Henderson Land acquired three years ago. It is expected to yield up to 1.84 million sq ft in gross floor area.
“As a rare parcel near the sea in the Central district, it is the most precious and rarest commercial land to be launched since the International Financial Centre. The land itself is square, easy to tailor, and highly malleable,” said Stanley Poon, managing director of Centaline Commercial.
“The development of the project is even a status symbol. With these advantages and great investment value, it will develop into a rare new landmark in the coastal area of Hong Kong.”
Despite these advantages, the rocky state of the market has prompted Knight Frank to slash its valuation of the project by about 20 per cent from an estimate in January, to between HK$23,000 (US$2,966) and HK$25,000 per square ft – HK$37 billion to HK$40 billion in total. The total investment is likely to be about HK$55 to HK$60 billion.
“Developers would be conservative in the bidding,” said Dorothy Chow, senior director of valuation advisory services at JLL. “The city’s office and retail markets are currently clouded with uncertainties due to Covid and the downturn.”
Only three to five developers or consortia are expected to submit bids, said Thomas Lam, executive director at Knight Frank.
“Although it is not a good time to sell large-scale commercial land, we understand it is the government’s approach to have proceeds and [ensure] the long-term development of the Central District,” said Lam. “If it is successfully sold, it can increase market confidence.”
Lam estimated that the chance of the site being withdrawn from sale is reduced by adopting the two-envelope approach.
He said the tender needs to be open and transparent, and called on the government, when the time comes, to explain the project planning and development content of the winning bid and the reasons it was chosen.
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