Sun Hung Kai Properties (SHKP) won the tender for an 11,537-square-metre commercial site in Hong Kong’s Mong Kok district, paying a third less than the low end of the parcel’s valuation to seal the city’s first successful land sale this year.

Hong Kong’s biggest developer by market value submitted a HK$4.729 billion (US$602.5 million) bid for the parcel via its unit East Classic Development, according to an announcement by the Lands Department.

The winning bid was 35 per cent less than the low end of the HK$7.3 billion to HK$12 billion range that valuers were estimating for the plot, located north of Argyle Street and east of Sai Yee Street. The sale came after the government withdrew three previous sites from sale in just over a month because of insufficient bids amid a downbeat market and high interest rates.

Two other groups submitted bids for the property: Century Mark Investments, which is a unit of billionaire Li Ka-shing’s flagship property company CK Asset Holdings, and Sunlight Fortune of Great Eagle Holdings and Sino Land Company.

A Chinese banyan tree, pictured in 2019, dominates the Mong Kok site sold to Sun Hung Kai Properties via a government tender process on Wednesday.

SHKP plans to develop a 320-metre building with 1.52 million square feet of space, which would tower over the district known for its crowded streets and bustling Fa Yuen Street Market, where sneakers and sports shops are the main attractions.

The building will be the “second tallest landmark building in Kowloon after the group’s International Commercial Center”, according to Raymond Kwok Ping-luen, SHKP’s chairman and managing director. “It will become the largest landmark office cum shopping mall in Mong Kok, which is the core commercial, retail and tourism hub in Central Kowloon.”

SHKP will be able to develop the site with a gross floor area between 84,960 and 141,600 square metres. The tender requires the winning bidder to build facilities including a day care centre for the elderly, a neighbourhood elderly centre, a centre for children and youth, a mental wellness centre, a community hall, a public transport interchange and a public toilet, according to a government statement.

“There is already a prominent commercial complex atop the railway station and nearby the tender site,” said Vincent Cheung, managing director of Vincorn Consulting and Appraisal, who values the parcel of land at HK$10.6 billion. “The development of this tender site would help complete the connection via footbridges between the railway station and the western and eastern part of Mong Kok, which is also the traditional hub of the district.”

Colliers had estimated the lot would fetch between HK$7.3 billion and HK$12 billion, said Hannah Jeong, head of valuation and advisory services.

“It is a surprisingly low price, but understandable given that the developer needs to provide several pedestrian links and footbridges, a public transport terminus, and a handful of government facilities,” she said.

Given the construction costs, the site’s overall completion value will be between HK$13.5 billion and HK$15 billion, she added.

In mid February, the MTR Corporation withdrew a site earmarked for its first residential project at the under development Oyster Bay station in northern Lantau Island. The project received three bids, the lowest number for an MTR project in nine years.

In early February, Hong Kong’s Urban Renewal Authority rejected a tender for a large plot in Kwun Tong, as the sole bid from SHKP did not meet the minimum requirement.

In January, the biggest residential plot of land in Hong Kong’s southern Stanley district in two decades was withdrawn from sale by the government after four tenders failed to meet the reserve price.

“The successful [Mong Kok] sale was driven by the government reflecting the current market situation in their valuation after the Kwun Tong site failed,” Jeong said.

The tepid interest in government land sales comes amid tightening monetary policy in the US. The Hong Kong dollar is pegged to the US dollar, which means that any movement in US interest rates triggers a corresponding action by the local monetary authority and banks in Hong Kong. Lenders in Hong Kong increased their prime rates three times in 2022 by a total of 62.5 basis points.