Sun Hung Kai Properties gains leverage to bolster flat prices

HONG KONG: Sun Hung Kai Properties decision to pay a steep price for a residential site in Tseung Kwan O is a move to take advantage of its development across the street and use the high land cost to price the flats there at a large premium, market watchers say.

Last Monday (Feb 22), SHKP paid HK$3.37 billion (RM1.47 billion) or HK$4,628 per sq ft for a plot at Area 66B in Tseung Kwan O. It was a remarkably high price, considering the per-square-foot price for the land alone was higher than prices of finished units at neighbouring projects, which are currently changing hands at HK$4,000 to HK$4,500 per sq ft in the secondary market.

The outcome was described by industry practitioners as "the flour costing more than bread".

"It is more a strategic move for SHKP rather than reckless bidding," said Pang Shiu-kee, managing director of SK Pang Surveyors. Assuming SHKP will take a reasonable profit of 30%, the selling price of finished units is predicted to be about HK$7,000 per sq ft - about 55% to 75% higher than the present market price, he said. SHKP is developing another site, Area 56, just opposite the plot it bought last week, into a 1.8 million sq ft, hotel-office-residential project with 1,000 units. It plans to release the residential units in the second half of this year.

Pang said the developer could price the units in Area 56 at HK$6,000 to HK$7,000 per sq ft.

"SHKP always will command a big premium over the [average price in] the secondary market, considering its high quality," he said.

The firm has raised more than HK$4.2 billion from the sale of 1,100 units at Yoho Midtown in Yuen Long at an average price of HK$5,400 per sq ft. One 1,378 sq ft unit sold for HK$16.26 million or HK$11,800 per sq ft, a record in terms of price per sq ft of gross floor area in the vicinity.

David Ng, head of property research at Royal Bank of Scotland, believes the co-development of the two projects could provide synergies both in terms of cost reduction and charging a higher selling price.

He said SHKP bought the site at Area 56 in February 2007 at HK$3.34 billion, giving a land cost of HK$1,885 per sq ft.

Ng estimated the land cost of Area 66B would be reduced to HK$4,073 per sq ft if SHKP managed to secure a bonus 15% gross floor area. By including ancillary areas such as bay windows and balconies in the calculation of gross floor area, the developer could gain as much as 30% more saleable space. Without the bonus floor area, Area 66B will provide a gross floor of 728,184 sq ft.

The average land cost -- including the bonus floor area -- of the two development sites together would work out to HK$2,979 per sq ft, even though SHKP paid a jaw-dropping price for Area 66B last week. – South China Morning Post