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
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
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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