URA suffers $1.5b loss from Kowloon project

The Urban Renewal Authority incurred a nearly HK$1.5 billion loss from the Shing Tak Street-Ma Tau Chung Road project as it was tendered at HK$1.9 billion - below the initial acquisition price.

Managing director Ir Wai Chi-sing said that in August URA initiated the tender process for the redevelopment project in Kowloon City. By the mid-November deadline, the authority received a total of six bids.

A consortium comprising of Sino Land, China Merchants Land and Great Eagle won the project for HK$1.93 billion.

URA initiated the acquisition of property rights for the Shing Tak Street project in August 2021, during a period of flourishing property market conditions, with the Centa-City Leading Index reaching a historic high of 190 points. The index, released by Centaline Property, reflects the prices of secondary private residential properties.

However, in the current downturn of the property market, the CCL Index has experienced a decline of more than 20 percent to around 150 points. Taking into consideration the construction cost and gross floor area of the reserved flats, the current estimated accommodation value for the project is merely HK$4,694 per square foot, according to URA.

This is compared to a nearby redevelopment project which was sold for HK$2.39 billion - or HK$8,571 per sq ft - in October last year, also won by Sino Land and China Merchants.

Additionally, the winning bid price is more than 20 percent lower than the earlier market average valuation of approximately HK$2.6 billion. Wai said that considering the current sluggish market conditions, the winning bid for the project is reasonable.

The project is expected to provide approximately 640 units - more than triple the original count of about 150 units.

This increase aims to offer new housing units to the market, benefiting a larger number of citizens in need of housing, said Wai. He expected URA to roll out tenders for projects in Kowloon City, Mong Kok and Sham Shui Po in the next few years.

Meanwhile, Wai said on his blog that the S&P rating contributes to enhancing URA's positive reputation and image, creating more favorable conditions for future external financing.

S&P recently maintained the "AA+" rating for the URA's long-term issuer credit, also upgrading the likelihood of government support from "extremely high" to "almost certain."