MTR rejects all five bids for plot at Tung Chung, Lantau Island, as developers recoil at huge sum needed to build

By Cheryl Arcibal / SCMP | November 11, 2021 4:38 PM SGT
The MTR Corporation has rejected all five bids for a large residential site in Tung Chung on Lantau Island. Photo: Winson Wong
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The MTR Corporation has rejected all five bids for a large residential site in Tung Chung on Lantau Island after the plot elicited a cool response from Hong Kong's developers.
"[MTR] has decided not to accept any of the tender submissions [and] will retender the project in due course," the rail operator said in a statement. MTR declined to give a further comment.
Given the costly investment required for the parcel, located atop MTR's Tung Chung traction substation, the fact the bids fell short was unsurprising, according to analysts. With a gross floor area of 929,364 square feet (10,000 square metres), the plot can accommodate between 1,400 and 1,800 flats and would require an estimated investment of HK$11.3 billion (US$1.45 billion) to develop.
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The companies that submitted bids were among Hong Kong's largest property developers, namely CK Asset Holdings, Sun Hung Kai Properties, Henderson Land Development, Sino Land and the Chinachem Group.
"The main reason for the unsuccessful tendering of the Tung Chung Power Distribution Station project would likely be the high land premium of over HK$5,000 per square foot, which is about 10 to 20 per cent higher than market expectations. This might lower the developer's investment return, and thus affect [their bids]," said Natalie Wong, senior director, valuation and advisory, at property consultancy Knight Frank.
The plot on Lantau Island, where the city's Disneyland resort and airport are located, received five bids when the tender closed last week. That was far fewer than the 35 expressions of interest the rail operator received in the preceding weeks.
The expressions of interest included ones from mainland China-based home builders such as Vanke China, Kaisa Group Holdings and China Overseas Land & Investment.
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Since then, many mainland developers have had to contend with a tightening credit squeeze as Beijing cracks down on risky borrowing.
Kaisa, for example, is selling assets to raise capital for liabilities including a missed payment on a wealth product and US$11 billion of dollar bonds, as it faces a hectoring by Shenzhen's government. The trading of its shares was halted in Hong Kong.
The developer has put 18 property projects in Shenzhen on the auction block, with a combined value estimated at 81.82 billion yuan (US$12.8 billion), according to a catalogue seen by the Post.
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The Tung Chung plot, which is about a 10-minute drive from the existing Tung Chung subway station, could be worth between HK$5.6 billion and HK$7.3 billion, including a HK$4.8 billion land premium payable to the government.
The estimated value translates to HK$6,000 to HK$7,800 per square foot, according to Knight Frank. After adding in construction costs, the total investment for the site could go as high as HK$12,200 per sq ft.
With flats in the district selling recently for between HK$13,000 and HK$16,000 per sq ft, developers probably found it difficult to justify the investment required, according to Michael Lee, an associate director at Prudential Surveyors (Hong Kong).
"Given that the development scale [of the site] isn't that small, the long distance from the MTR station and the infrastructure nearby yet to be completed, it is not surprising that the submitted tenders could not reach the reserved price," said Lee.
He expects the site to be put up for tender again in a year or so when the city's economy has further recovered from the impact of the Covid-19 pandemic.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

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