SKYLINE Technologies -- News Update (6 April 2005 )

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1. Population cap mooted for cultural district
QUINTON CHAN , SCMP 6 April 2005

A limit on the number of people allowed to live in the West Kowloon Cultural District is being considered as part of a government plan to dampen public criticism of the project.

A government source said the idea was one of several being considered by officials in an effort to take the heat out of opposition to the plan.

"We want to demonstrate to the public that this is an arts and cultural project rather than a property development," the source said.

The project, on which the public is being consulted until June, has come under severe criticism from lawmakers and the arts community over its single-developer approach and its giant canopy - the centrepiece of Lord Foster's winning blueprint for the $24 billion arts hub.

Critics say the project could turn into just another property development, with the developer making a huge profit.

Whichever consortium wins the tender will operate the project - including museums, performance venues and flats - for 30 years.

Three short-listed consortiums are bidding for the project - the Cheung Kong-Sun Hung Kai Properties joint venture Dynamic Star International, Henderson Land's World City Cultural Park, and Sunny Development, a consortium led by Sino Land.

All have proposed a much higher population density for the 40-hectare site than the government's suggested plot ratio of 1.81.

"We only suggested [a ratio of residential floor area to site area of] 1.81 times. How about if we cap the plot ratio at that level?" the source said. "This could be feasible, as property prices are now rising." Such a move might counter the widely held impression that the project is a property development in disguise.

The source admitted the government could not at the moment resolve the biggest controversy - that of the single-developer approach.

The solution suggested by some critics - that the winning consortium be asked to partner with small developers - was not feasible.

"You know a forced marriage would not yield good results," the source said.

2. Garley Building owner to sell redeveloped premises
ERNEST KONG , SCMP 6 April 2005

China Resources Enterprise, having secured full ownership of Garley Building after a seven-year battle, plans to sell the site which it is in the process of rebuilding.

The company is redeveloping the building, which was heavily damaged in a tragic fire in 1996, into a 12-storey Ginza-style shopping mall. It was seeking about $1 billion, or about $9,000 per sq ft, for the property, an agent said.

While construction of the 101,332 sqft project will not be completed until the end of 2007, most potential buyers are local investors who are confident in running a shopping mall near Jordan MTR station.

Colliers International director of Investment Antonio Wu said: "Most foreign investors eye retail property that is already generating a stable rental yield, while [this] property is only in pre-sale status. Interested parties are mostly local investors and developers."

The property, at $1 billion, can generate a rental yield of about 4 per cent if it is leased for about $30 per sq ft per month, which is similar to rents at Ginza-style shopping malls in Causeway Bay.

China Resources Enterprise has been offloading its non-core properties in Hong Kong. The firm recently sold an office tower with a retail podium - CRE Building on Hennessy Road, Wan Chai, for $41 million.

Last October, it sold an office project near the Central escalator for $1.33 billion.

A property agent said: "The firm is selling its properties in a low profile. It welcomes price negotiation but will not put properties on tender."

The Garley Building name would probably change when the new building was completed, a property agent said.

After being badly damaged by the fire, the abandoned building became an eyesore on bustling Nathan Road. Despite strong redevelopment merit and keen interest from majority owner China Resources Enterprise, which owned about 68 per cent in undivided shares before the fire, the building went through a long land-assembly process.

In 2000, the firm had amassed an undivided share ownership close to 88.5 per cent, but it could not force an auction until 2003, when its ownership rose to more than 90 per cent, the minimum level required to force an auction according to the compulsory sale for redevelopment ordinance.

China Resources Enterprise secured full ownership from the five remaining owners in an auction for $19 million.

China Resources Enterprise said it had spent about $300 million to raise its ownership to more than 90 per cent before the forced auction.

Investment in the Kowloon-Canton Railway Corp's biggest residential project for the year at Nam Cheong station is likely to top $20 billion and the successful bidder will have to pay instalments of more than $1.1 billion, according to KCRC property director Daniel Lam Chun.

The investment estimate for the two-phase development exceeds surveyor figures of $16 billion, including a land premium of up to $11 billion, or about $2,800 per square foot - but strong bidding is expected in the bullish market for another housing development along Kowloon railway lines.

The corporation yesterday called for expressions of interest in the 4,247-unit project - its second this year - and left the window open wider than usual until April 29.

"We hope to give more time to small or medium-sized developers to prepare and form bigger consortiums vying for the contract," Mr Lam said, adding that he hoped to see more participation from these developers.

The project, which will generate about 3.2 million square feet of residential space and about 750,000 sqft of commercial space, comprises 10 high-rise residential towers, nine sea-facing low-rise residential blocks and a 39-storey office tower with a retail podium.

The first phase, expected to be completed in 2009, involves the low-rise blocks, four high-rise towers, a 90,000 sqft shopping centre, a private kindergarten and a clubhouse.

The second phase, scheduled to be finished in 2015, involves six high-rise residential buildings, a clubhouse, a 39-storey office tower and a 200,000 sqft shopping centre.

Developers have already shown enthusiasm for the KCRC's 2,528-unit site at Wu Kai Sha station on the Ma On Shan line.

This attracted 17 expressions of interest in January, including from Citic Pacific and China Overseas Land & Investment which had been inactive in the sector for some time.

Apart from the Nam Cheong and Wu Kai Sha developments, KCRC will tender three more projects this year - Yuen Long, Tuen Mun and Tsuen Wan West stations on the West Rail line.

Mr Lam said the same land premium payment method used for Wu Kai Sha, by which developers can pay in instalments, would be extended to the Nam Cheong project.

While the government's land reserve list included sites at West Kowloon, Mr Lam said he was not worried the supply would dampen developer interest in the Nam Cheong site.

"The land reserve list has been released for a period of time and up to now no land has been successfully extracted from the list. Also, the lands in the list are in some ways different from our site, so they should not be a threat to us," he said.

Tendering for the Nam Cheong project will start at the end of June and the contract will be granted in the third quarter. Tenders for Wu Kai Sha are expected this month.

Mr Lam said KCRC, which acted as the development agent for the government-owned Nam Cheong site, was close to finalising talks with the government on the land premium for the Wu Kai Sha site.

He added that profit-sharing was a condition for the Wu Kai Sha development and the successful bidder would have to pay $300 million in instalments.

Mr Lam said the rail firm would receive its first property project income in 2007 - from the $4 billion Ho Tung Lau project in Sha Tin, granted to Sino Land in 2002.