I've found paradise, says Chao

I've found paradise, says Chao

Danny Chung

Friday, April 06, 2007

For Cecil Chao Sze-tsung, tycoon and youngest son of the late Hong Kong shipping magnate Chao Tsong-yea, it is the end of a long struggle to get what he wanted, namely a plot of land on the outlying islands which he hopes to turn into "a paradise."
Last week, as he inched his way slowly to the exit at the cultural center through a blockade of reporters desperate for a soundbite, his peers, outside observers and investors may have been wondering why his company Cheuk Nang (Holdings) (0131) paid nearly HK$100 million for the site on Cheung Chau.

The answer came the next day at a press conference when Chao explained himself.

For a developer of Cheuk Nang's size, to get a site of 110,000 square feet with sea views is extremely difficult.

"Even if you find agricultural land with no sea view and can develop it as low-density residential, the change of use premium plus the cost of the land itself, I think [the total amount] would not be less than HK$100 million," Chao said.

Looking at it from that perspective, then perhaps the company got off lightly with final price of HK$96.5 million for the site at Shui Hang on Cheung Chau even though the price came in at 147 percent above the opening bid of HK$39 million.

Chao indicated he was prepared to go higher to win control of the site, which had been the subject of four unsuccessful attempts to trigger an auction by him since last April.

"The Cheung Chau site price was lower than the price which we set, but the [final] price wasn't exactly cheap," Chao said.

The site has an area of 111,752 sq ft, offering 44,692 sq ft of residential space at a plot ratio of 0.4. This translates into an accommodation value of HK$2,159 per square foot or four times the HK$491 psf set in August 1999, the last time a Cheung Chau site was sold at auction.

Chao brushed aside concerns that he may have trouble selling his units when nearby flats are selling at HK$2,200 psf on the secondary market.

This is because Cheuk Nang is not going to build a run-of-the-mill residential project at the site. Cheung Chau is likely to be seeing some dramatic changes in future.

The islands of Tsing Yi and Lantau, Chao said, are already linked with roads.

"I think, sooner or later, there will be road links [to Cheung Chau] but as to when, it is government policy," he said.

Until then, the site - which will be called "New Villa Cecil" - will be served by helicopters and luxury yachts.

"We will not only turn the site into a paradise in Cheung Chau, we will also change the surroundings," Chao said.

Such improvements include an artificial beach, a lagoon for swimmers, a pier to the site, improvements to roads and the possibility of using golf carts for transport by the residents at New Villa Cecil.

"Cheung Chau's development will not be done in one day. We are looking at development in the next 10 to 20 years. So we are bullish on Cheung Chau," Chao said.

The company has estimated a construction cost of about HK$1,200 psf with total investment, including the land cost, coming in at HK$200 million.

However, details on the number of units, their size and whether the company will sell or lease them are yet to be decided.

Chao sought to allay fears that the company will have trouble getting a return on the project.

"On a land price of about HK$100 million, I guarantee it will definitely make money. As to how much money is made, it could exceed everybody's forecast," he said.

The company's previous experience with Villa Cecil at Pok Fu Lam, which pre-dates Bel-Air at Cyberport by at least a decade. underscores his optimism for the Cheung Chau purchase.

"When we got the [Pok Fu Lam] site, compared with the Cheung Chau site, it was even quieter. There weren't even street lights," Chao said.

Phase I of Villa Cecil at 200 Victoria Road was sold out a few years ago while phase II at 192 Victoria Road is 90 percent leased.

Phase III at 216 Victoria Road is under construction.

The company bought the site at phase II for HK$32 million in May 1990 while the site for phase III goes further back to January 1986 when the company bought it for HK$6.3 million.

To further silence doubters, Chao also pointed to the company's Cotai Strip No 1 project in Macau where it is building more than 1,000 flats.

When details of the project were announced last November, it was looking to sell at HK$3,000 to HK$4,000 psf but now Chao said it is looking at prices of HK$5,000 to HK$6,000 psf.

"The projects I invest in, 90 percent of them make money," said Chao, presumably with an eye to reassuring his investors that include US-based banking group Citigroup, which has a 12.7 percent stake, and Value Partners, which holds 6.3 percent.

So certain is Chao that he has a winner on his hands that he is offering the ultimate buy-back offer. "I guarantee you one thing, if it does not make money, I'll privately buy it all," he said.