World's costliest plot of land sold in Hong Kong for $4.2 billion

HONG KONG - Henderson Land Development snapped up a rare commercial site in the heart of Hong Kong's central business district on Tuesday for HK$23.3 billion (S$4.2 billion), setting a fresh record for land sold by the government in the city.

It outbid eight other developers including local giants Cheung Kong Property Holdings and Sun Hung Kai Properties to win the site in Central, where office vacancy rates are less than 2 per cent.

The price beat market estimates for between HK$14 billion and HK$22.3 billion.

The site at Murray Road, the only plot of large-scale commercial land tendered for sale in the district in two decades, was widely seen as a prime site for a company headquarters thanks to its location and gross floor area of more than 460,000 square feet.

The site is currently a public car park squeezed between the two major flagship skyscrapers owned by Li Ka-shing's CK Hutchison Holdings Ltd and Cheung Kong Property Holdings Ltd.

The sale comes as the availability of office space remains tight in the financial hub and landlords are offering little room for rental negotiations, pushing prices ever higher.

Mainland Chinese firms have doubled their presence in Central in less than a decade, taking up 21 per cent of all floor space leased in the Central Grade A office market in early 2016, compared to 10 per cent in 2009, according to real estate services firm JLL.

The latest result halts a winning streak by mainland Chinese developers marking their territory in the former British colony, where government intervention is minimum and financing costs are low.

Mainland Chinese firms have piled in to snatch up high-profile office towers in Hong Kong, with property giant China Evergrande Group splurging a record-breaking HK$12.5 billion for a building in Wan Chai and state-owned China Life Insurance Co Ltd buying an office tower in Kowloon's Hung Hom district for HK$5.85 billion two years ago.

China's strengthening of capital controls late last year in a bid to restrict funds flowing out of the country as the yuan plummeted could be a factor behind the dampened enthusiasm for the rare Central site, analysts said.

In 2015-2016, mainland Chinese companies gobbled up 29 per cent of land sold for development in one of the world's most expensive real estate markets, according to industry figures.

Two mainland Chinese developers also shattered the city's record for the most expensive piece of residential land ever sold when they jointly bought an oceanfront site on southern Hong Kong island at HK$16.9 billion in February.

The rental gap between the most and least expensive grade A office buildings in Hong Kong can be as wide as HK$145 per square foot per month, which translates into annual rental savings of as much as HK$174 million for a tenant moving a 100,000 square foot office outside of Central, according to JLL.

European and US financial firms, in efforts to cut costs, reduced their presence in the greater Central area by 146,000 square foot and 28,000 square foot respectively in the three-year period to March 2016, according to a November report by property consultancy CBRE.

Their Chinese counterparts increased their office space in the same district by 633,000 square foot, taking up 73 per cent of the total banking and financial sector space expansion in the area.