Hong Kong Residential

CK Asset's hotel-to-housing project move seen lifting return

The redevelopment plan comes at a time when home property in Hong Kong prices have begun to slide from record highs. © Reuters

The redevelopment plan comes at a time when home property in Hong Kong prices have begun to slide from record highs. © Reuters

HONG KONG (Nikkei Markets) -- CK Asset Holdings has submitted a proposal to convert a hotel in Hong Kong into a residential project in a move analysts expect to be more profitable for the property major while improving supply in one of the world's most expensive housing markets.

The company, a member of billionaire Li Ka-shing's sprawling empire, wants to redevelop the Harbour Plaza Resort City hotel, a twin-tower property with 1,102 rooms in the city's Tin Shui Wai area, into a larger project for residential use. The proposal envisages the property's redevelopment "within a very short time frame" into two blocks of 53 floors each and a total of 5,000 residential units, according to a filing with the Town Planning Board. At present, the hotel's structure comprises of 27 floors in tower 1 and 28 floors in tower 2, according to the hotel's reservations helpdesk.

The move symbolizes efforts to make better, and a more profitable, use of land resources in a city that has been notorious for surging home prices and shrinking living spaces. Last year, luxury hotels group Mandarin Oriental International announced plans to close the Excelsior, its popular waterfront hotel in the city, and redevelop it into a mixed-use commercial building at a cost of $650 million over a six-year period.

"Land resources in Hong Kong are extremely scarce and the proposal would also represent a more optimum and efficient use of land resources," Harbour Plaza Resort City said in its filing.

The Harbour Plaza Resort City hotel markets the latest effort by CK Asset to redevelop an existing hotel. The company has already received an approval from the city's Buildings Department to redevelop its Harbourview Horizon hotel, and is awaiting a similar approval for the Harbourfront Horizon hotel, according to local media reports. Both properties are apartment-style hotels.

Valuations for hotels are lower than they are for commercial and residential assets, and the redevelopment would facilitate a better use of the land plot, according to Hong Kong property sector analyst Jeff Yau at DBS Bank.

"We think Hong Kong will see more and more hotels try to change the way they use their land," Yau said.

CK Asset's hotel and serviced suite portfolio comprised of more than 20 properties, with more than 16,000 rooms for guest accommodation as of June 30. The company posted a 65% year-on-year increase in net profit for the first half of 2018 to HK$24.75 billion, helped by the sale of some investment properties, while total revenue fell 19.2% to HK$24.11 billion. It had a land bank of 5 million square feet in Hong Kong and 106 million square feet in mainland China as of June 30.

The redevelopment plan comes at a time when home property prices have begun to slide from record highs. Residential prices in the city have dropped 5.9% between July and early December, and were expected to fall a further 10% in 2019, according to commercial real estate services provider Cushman & Wakefield.

CK Asset's shares climbed 1.1% to HK$63.20 ($8.06) as of 3:32 p.m. in Hong Kong on Wednesday, outperforming many peers. Sun Hung Kai Properties gained 0.3% and Henderson Land Development added 0.6%. The city's benchmark Hang Seng Index was up 2.1%.

Thomas Lam, an executive director at property agency and consultancy Knight Frank, said the redevelopment would offer a "much better" project return to the group and also fits government programs to increase the supply of homes.

Lam estimates the residential units to be available for sale in four to five years, and fetch a price of at least HK$14,000 per square foot, with the plot's access to a light rail station and commercial facilities as well as proximity to the Chinese city of Shenzhen among favorable factors.

Source: Nikkei Asian Review, 9 Jan 2019