URA Opts Not to Award Tender for Kai Tak Road/Sa Po Road Development Scheme, Explores Self-initiated approach for Realising Planning Gains and Community Benefits
The Urban Renewal Authority (URA) has opted not to award the tender for the Kai Tak Road/Sa Po Road Development Scheme (Sa Po Road project) after receiving only one tender submission by the close of submissions in September. The sole tenderer proposed additional terms that were found to deviate from the URA’s tender terms. The Tender Review Panel (TRP) established under the URA Board deemed accepting these additional terms would be unfair to those who did not submit tenders. Following clarification with the tenderer and being confirmed that the additional terms would not be withdrawn, the Board endorsed the TRP's recommendation not to award the tender last Tuesday. This decision reflects the URA's commitment to responsible governance as a public body.
Factors Influencing Developers' Participation
The URA initially invited Expressions of Interest for the development of the Sa Po Road project in October 2023, and decided to commence the retendering process in June of this year after considering several factors. To enhance the project's attractiveness, the team refined the criteria for shortlisting qualified developers and consortia eligible to bid for the project while improving various tender terms. These revisions included the introduction of staged payments for tender amounts and the removal of certain sales restrictions, such as caps on the percentage or number of units available for company and individual purchasers. These adjustments were intended to allow more flexible payment and sales arrangements for the developers.
Some industry experts cited that the shape of the Sa Po Road project site presents challenges on design flexibility. Additionally, the requirement to construct a multi-level sunken plaza, an underground public vehicle park, and a community Child Care Centre drives up development costs. The post-pandemic return to normalcy has also altered the consumption pattern of local residents, leading to uncertainty in the retail and consumer markets, as well as high vacancy rates for retail shops. Consequently, developers’ investment interest in the construction of retail and commercial premises has been dampened.
When the Sa Po Road project commenced in February 2019, the “Lung Shing” area had a maximum permitted plot ratio of 7.5 for domestic use and 9 for overall development. This limitation prevented developers from transferring any unused plot ratio to residential areas, even if they desired to reduce the commercial floor area. Furthermore, at the time the project was approved by the Town Planning Board and the Chief Executive in Council Meeting, the interchangeability of domestic and non-domestic floor space recommended in the District Study for Yau Ma Tei and Mong Kok had not yet been implemented; hence not applicable to the project. Additionally, two adjacent buildings, aged only 10 and 18 years, were excluded from the project’s boundary, which further restricted design flexibility for developers.
The Sa Po Road project was also the first tender site to close following the recent interest rate cuts. Despite the interest rate reductions, some analysts contend that developers continue to face high borrowing costs in the initial stage, which might have affected their interest in bidding on the project.
Sa Po Road Project: Connecting Old and New Districts of Kowloon City and Kai Tak Development Area
At the commencement of the Sa Po Road project, the URA adopted a “planning-led” approach which focuses on restructuring and re-planning land use, road networks and the urban fabric within the project area, enhancing connectivity and pedestrian access between the old and new districts of Kowloon City and the Kai Tak Development Area. The ground-level area of the sunken plaza will integrate with the proposed gateway square on the eastern side of the Nga Tsin Wai Road / Carpenter Road Development Scheme (Nga Tsin Wai Road project) and the revitalised Tak Ku Ling Road Rest Garden. Together, these spaces will form a significant recreational area that connects to the Kai Tak Development Area, envisioned as a future community hub.
Additionally, the URA has set aside commercial spaces within the Sa Po Road project for some restaurants and shops with local character within the Sa Po Road project and Nga Tsin Wai Road project area, ensuring that they can continue to operate in the “Lung Shing” area, thus preserving and showcasing its distint identity.
Upon redevelopment, the project is expected to deliver around 810 new residential units, contributing to the housing supply. It will also feature a community Child Care Centre to serve families in need, along with an underground public vehicle park offering 300 parking spaces. The additional parking spaces will alleviate the current shortage of parking and reduce illegal parking, which currently leads to traffic congestion in the area.
Options for Retendering or Self-Developing by the URA
In light of the potential planning and community benefits associated with the Sa Po Road project, the URA plans to conduct a comprehensive study to determine whether to pursue retendering or a self-developing approach after not awarding the tender. This study will consider the planning relationship and progress of both the Sa Po Road and Nga Tsin Wai Road projects, the financial and risk implications for the URA, as well as external factors, such as the supply of first-hand housing and fluctuations in interest rates, to identify the optimal development model.
Managing Expenditure According to Cash Flow Conditions
Given the URA's limited income sources, which primarily consist of upfront payments from developers to fund the acquisition and compensation costs for the next projects, the absence of income from the Sa Po Road project in this financial year will impact URA’s cash flow. The URA has already issued HK$12 billion in bonds to support the acquisition costs of about HK$ 30 billion for the commenced projects entering acquisition phases over the next two years. The team needs to carefully manage the timing and pace of acquisitions, particularly for large-scale redevelopment initiatives. For projects not yet tendered and those included in its corporate plan set to launch within the next five years, the URA will need to make careful decisions based on cash flow, global economic conditions, and the local property market while dynamically adjusting the timeline for various project phases.
Balancing Financial Feasibility and Pace of Urban Renewal for Future Projects
Although the decision not to award the tender for the Sa Po Road project will exert financial pressure on the URA, the URA remains committed to its urban renewal responsibilities. Adhering to the principle of prudent financial management, the URA will adjust the planning and pace of its redevelopment initiatives while continuing its urban renewal work. The team will manage the scale of acquisitions, focusing on projects that do not require substantial acquisitions to reduce costs and maintain liquidity. Furthermore, the URA will maximise land use through the “Single Site, Multiple Use” approach by integrating outdated government facilities or unused government land into redevelopment plans, thereby unleashing land development potential and accumulating resources for larger projects that involve high acquisition costs.
Timely Financing Arrangements to Uphold Self-financing
Depending on the progress and outcomes of future tenders, the URA will consider issuing bonds or securing syndicated loans at the appropriate time. However, URA will not rely solely on financing to maintain financial stability, particularly not for implementing projects anticipated to incur significant losses through financing. In response to the current global economic climate and property market conditions, the URA will continue to adopt a cautious approach, adjusting its measures and strategies based on the principles of balancing expenditures with revenues, upholding the principle of self-financing, and advancing urban renewal projects at a manageable pace. The URA hopes to gain understanding and support from the public and owners of old buildings throughout this process.