Larvotto - do you know the boatyard?
3rd March 2010
And the Oscar for most outrageous property launch goes to...Larvotto,
a luxury industrial-cum-residential development 15 years in the making, which
was auctioned in 1995 for $255 per gross sq ft (gsf), converted to residential use in
2005 for $4,336/gsf, constructed for (let's say) $2,000/gsf and is now being
touted at HK$25,000/gsf (including your share of the common
areas, the cross-sectional area of the walls, etc). At that price, the whole
thing is tagged at HK$22.8bn (US$2.94bn). You can't blame them for
trying, but if this isn't evidence of a bubble, then what is?
"How well do you know Ocean?", "View the Ocean, Feel the Ocean" says the marketing, for a development which faces North-East across Aberdeen
typhoon shelter, behind some noisy boatyards and sawmills which one day will
likely be redeveloped, potentially blocking the view. Most residents will have
to crane their necks to see the South China Sea which is, not unnaturally, to the
South.
"The Gem on Hong Kong Island" says the Post Office-circulated spam, but it's
not on Hong Kong Island, it's on Ap Lei Chau (which apparently means "duck
tongue island" on account of its shape), an island connected by road bridge to
Hong Kong Island. Here's a 2007 satellite view of the project:
Auctioned to one bidder in 1995 as Industrial
The Larvotto site is Ap Lei Chau Inland Lot 129, or ALCIL129 for short. With
a land area of 180,511 sf, it was originally sold for industrial use, in a
government land auction on 25-Jan-1995 at the opening bid of HK$230m to
Paliburg Holdings Ltd (Paliburg,
0617), via its then wholly-owned subsidiary,
Cheerjoy Development Ltd (Cheerjoy).
In the 1994 annual report, Paliburg said it planned to build a "modern
industrial complex" called "Hong Kong Industrial Trade Plaza" with a floor area
of 1,714,800 gsf at a plot ratio of 9.5, so the accommodation value of the land
was just $134/gsf.
By the 1996 report, with site formation work nearing completion, Paliburg was
beginning to change its mind and by the 1997 report, the application for
rezoning for "comprehensive development comprising residential, hotel and
commercial components" was "being further pursued". On 3-Oct-1997, the
Town Planning Board (TPB)
rejected the application, partly because of the noise and the "fugitive
industrial emissions" from the boatyards across the road. The application
changed to "residential and commercial" by the 1998 report.
SHKP and Kerry Properties buy in
On 30-Jul-1999, the TPB approved rezoning to permit residential development,
restricting the site to a plot ratio of 5, so the original premium for
industrial use now equated to 9.5/5 x $134=$255/gsf, before
conversion. At the same time, the TPB looked across the Ap Lei Chau Praya Road
to the site occupied by the Ap Lei Chau Boatyards, which was proposed to be
rezoned from "I" (Industrial) to "U" (Undetermined). The developer had got what
it wanted.
Two weeks later, on 14-Aug-1999, facing financial pressure, Paliburg
sold 70% of
Point
Perfect Investments Ltd (BVI), which owned Cheerjoy, to
Twin Luck Worldwide Ltd (BVI), a
50:50 joint venture between Sun Hung Kai
Properties Ltd (0016) and Kerry
Properties Ltd (Kerry Properties, 0683). The value of the
site was agreed at $570m before conversion to residential use, so Paliburg would
receive $399m for the 70% stake, and the new partners would procure financing
for the development at market rates of interest or 1.5% over HIBOR (whichever
was higher), relieving Paliburg of that burden. $99m of the payment was deferred
pending publication of the zoning approval.
Given that this was announced just 2 weeks after the Town Planning Board
approval, it would be interesting to know whether negotiations were already
underway at the time of the approval, and if so, whether any of the members of
the TPB had any commercial relationship with the two new partners.
Zoning, planning and boatyard noise
The Outline Zoning Plan reflecting approved Residential (Group E) zoning was
amended on 3-Mar-2000, and required further TPB approval of the actual
residential development plan "with a view to minimizing the possible
industrial/residential interface problems". However, there were numerous
objections from the boatyard operators, and the TPB reverted the zoning of the
boatyard site to "I" (Industrial) on 26-Sep-00. The Outline Zoning Plan was
approved by the Chief Executive in Council on 2-Mar-01.
Meanwhile, the developer pressed on with the planning application. On
8-Mar-02, the TPB rejected a plan for 1290 units in towers up to 50 stories,
because of the noise from the boatyards and the "visual impact on Aberdeen
Harbour and its coastal area". On 25-Jul-03, the Metro Planning Committee (MPC)
of the TPB rejected a plan for 1336 units in 5 blocks up to 38 stories on a
3-storey podium, again because of the noise problem.
However, on 16-Jan-04, the TPB overruled the MPC and
approved the plan,
which by now included an additional 1,000 square metres of retail space
(increasing the plot ratio to 5.06) and 3,000 square metres of club house (which
is exempt from plot ratio), despite the objections of the Environmental
Protection Department.
In a classic bureaucratic override, the TPB had approved the project
even though the Environmental Protection Department did "not support" it. In
bureau-land, they never use the word "object". The EPD was opposed because the
noise from the "unauthorized" steel boat repairing activities in the boatyards,
which are only 30 metres away, exceeded the noise limit in the
Hong
Kong Planning Standards and Guidelines (HKPSG).
The noise problem had been discussed at the TPB meeting on 16-Jan-2004 when the
scheme was first approved on review. The applicant had incorporated "mitigation
measures" including "non-openable windows", but towers 1 to 3 of the 9 Towers
would still exceed the HKPSG noise limit and nothing further could be done. It
was noted that the boatyards provided "supporting services to the Aberdeen
fishing industry" and that the Short Term Tenancies of the boatyards prohibited
steel boat repair (presumably allowing wooden boats), but this was "difficult to
enforce".
The
minutes of TPB and MPC meetings were not published before 17-Jun-2005, as
meetings were not open to the public. The disagreement of the EPD with the 2004
approval is finally revealed in the MPC minutes of
7-Apr-2006 (p21-25) and
27-Apr-2007 (p24-29). Enjoy!
The negotiations on the land premium for lease modification to residential
use continued, and on 9-Nov-2005, a land premium of HK$3,913.88m was
agreed, so the conversion premium was $4,336/gsf. The MPC
gave approval on 25-Nov-05 to amend the plan to 816 larger units, which was
reduced on 7-Apr-06 to 776 units in 9 towers, on 27-Apr-07 to 770 units, and on
8-Jul-09 to 715 units. As you can see, they were adjusting to larger flats as
demand in the luxury market changed. In its 2006 report, Kerry Properties put
the completion date as "third quarter of 2009", slipping to "fourth quarter of
2010" in its 2007 report and "first quarter of 2011" in its 2008 report.
In a Planning and Lands Department
report in 2006, the boatyard site was considered further. There is a small
sliver of land, just 0.05ha (or about 5,300 sf) visible on the ownership plan on
page 3 of the PDF, which is under single private ownership and used for
"temporary" shipyard. The remaining 2.34ha is Government land leased out on
Short Term Tenancies for "temporary" shipyards and two sawmills. The shipyards
had been there for "over 15 years" (now over 19 years) and there are "practical
difficulties" in their relocation.
Politics
Why should anyone on a short-term tenancy expect permanent occupation rights?
Could it be that there are other interests at stake here, such as the
redevelopment potential of those boatyard sites and demands for compensation?
We pause to note that the Agriculture and Fisheries sector has 40 seats in
the 800-member committee which elects HK's Chief Executive, or 5% weighting,
vastly disproportionate to the sector's economic significance - it
accounts for just 0.1% of GDP. The 40 seats were
returned uncontested
in 2006. The electorate comprised just 160 organisations in that year, 77 of
which are named in Appendix B of the
guidance notes
on registration. This neatly illustrates one of the design features of HK's
Election Committee. Apart from tycoon representatives, it is stuffed with
over-weighted sectors which depend heavily on government support, such as
agriculture, fisheries, sports, performing arts and culture. There is inevitably
reciprocity in government policy in return for political support.
Larvotto is named after a region and beach in Monaco, a place about as densely
populated as Ap Lei Chau, so it is fitting in that sense, but unless you enjoy "unopenable
windows" or the pleasant sound of saws on steel in the mornings, you
might prefer not to pay $25,000 per sq ft (plus
stamp duty), or anything like that, for this "inherent supremacy blessed by
nature" - especially when it's only on a 37-year lease. Ah yes, Hong Kong's
dwindling leaseholds - we'll get to that another day.
© Webb-site.com, 2010
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