Sunday, November 29, 2015   

Government demands $300m premium for Mongkok site

Karen Chan

Thursday, December 16, 1999

rnment demanded a $300- million land premium for a 1.75

million square feet commercial-hotel redevelopment project in Mongkok

from Great Eagle Holdings and the Land Development Corporation (LDC),

according to market sources.

The Lands Department confirmed yesterday that the developers had

reached an agreement on the premium, but refused to confirm the

$300-million figure.

The deal marks the end of a lengthy saga in which the original premium

for the project spanning Argyle Street and Shanghai Street was

reported to be $1.5 billion last year and $2.5 billion back in 1997.


Assuming $300 million is correct for the long-delayed urban renewal

scheme, it will translate to an accommodation value of $171.43 per sq


In September, Great Eagle assistant director Adrian Lee hinted that

the group is expecting a "very, very low land premium."

An analyst with a US brokerage said the decline reflected the drastic

fall in property prices and the land premium will directly affect the

project's overall cost.

He said if the premium is set below $500 million, the developers would

be able to avoid any development losses.

In June 1999, the LDC executive claimed the delay cost the corporation

$30 million a month in interest which had undermined the profitability

of the office-hotel redevelopment project in Mongkok. The development,

owned equally between the quasi-government LDC and Great Eagle, will

include 710,000 sq ft of office, 581,000 sq ft of commercial space and

a 42-storey, 750-room hotel development. It is one of the largest

projects in Great Eagle's history. After spending about $4.4 billion

for possession of the 129,120 sq ft site over the past 10 years, it is

expected that the construction work will start very soon after an

agreement on the land premium has been reached.

Great Eagle deputy chairman Lo Ka-shui said earlier the company hoped

to start construction on the site this year _ subject to the

settlement with of the land premium payment _ and should be finished

by 2002 or 2003.

He said the project would expand the group's Hong Kong property

portfolio by nearly 80 per cent when completed.

An analyst with a European brokerage house said the redevelopment

project would be a financial burden instead of a growth vehicle for

Great Eagle.

According to the agreement with the LDC, Great Eagle will have to pay

all the costs incurred and will not be able to recover them until

profit is realised after the sale of the properties.

Given the banks' tightened lending policies on project financing, Mr

Lee said the group would consider pre-selling some office space to a

third party to raise money to finance the project.

In addition, the analyst noted that the redevelopment also included

64,560 sq ft of government, institution and community facilities,

which are not expected to generate any revenue for Great Eagle but

will still increase the cost for the project.

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