News Analysis: Accepted the land exchange for the Siu Ho Wan Depot development site
- Land premium is assessed on a full market value basis
The deal will significantly enlarge MTRC’s residential land bank
Neutral or slightly negative market reaction expected
MTRC has accepted the government’s land exchange offer for the existing Siu Ho Wan Depot development site, which is expected to provide about 20,000 public and private residential units in the medium to long term. Around 10,000 units are private housing units.
To cater for the transportation needs of the new community, MTRC will construct a new railway station at Siu Ho Wan (Oyster Bay Station) along the existing Tung Chung Line. The company is expected to commence construction in 3Q23 with a view to commencing commercial operations by end-2030.
Whilst maintaining the functions and operations of its existing depot, MTRC will migrate and re-provision the depot to enable the proposed property development. Private development will span a total GFA of 860,500sm (9.26msf) , split into 826,000sm (8.89msf) for residential use and 34,500sm (0.37msf) for retail purposes. The project will be developed in phases commencing in 2022 with the final phase to be completed from 2039 onwards. Certain portions of the site will be handed over to the government to implement the public housing development.
The land premium is assessed on a full market value basis (i.e., on a with-railway basis). The costs of constructing a new Oyster Bay Station, re-provisioning the depot, property enabling work, and site formation, which are, in aggregate, estimated to be HK$36bn (to be incurred over the next 15 years) based on Dec 2020 prices, are deductible in the land premium assessment. This differs from other property developments associated with new rail lines for which the land premium is assessed assuming the absence of railways.
The land premium will be fully paid at the time of executing the land grant.
Assuming the land premium of the Oyster Bay development is HK$5,000psf, we estimate the land premium payable to come in at c.HK$10bn after adjusting for deductible costs.
At first glance, we see the deal as neutral to MTRC, as the land premium is assessed on a full market basis. However, given the current unfavourable residential market sentiment, the market may not react positively. Nonetheless, the deal significantly increases the company’s residential property exposure in Hong Kong. This would make MTRC’s future earnings prospects much more sensitive to home price movements.
Currently, we have BUY rating on MTRC with HK$46.45 TP.