Wharf Development has agreed to pay a higher-than-expected HK$12 billion (US$1.5 billion) to become the owner of the first residential land parcel to be sold since 2010 in Hong Kong’s most exclusive housing enclave.

At HK$46,272 per square foot, the sale has also set a record for Hong Kong’s most expensive residential site sold by government tender in terms of square footage. Back in 2006, Sun Hung Kai Properties splashed out HK$1.8 billion, or HK$42,196 per square foot, for the site of luxury project Twelve Peaks at 12 Mount Kellett Road.

The plot at 2,4,6 and 8 Mansfield Road on The Peak, the site of the former Quarters Premises, where some of Hong Kong’s civil servants were housed, measures 134,884 sq ft and can yield up to 259,337 sq ft of gross floor area.

The successful tender, which follows the sale of the smallest parcel at the beginning of December on the former runway of the old Kai Tak Airport site, shows that the division of large land parcels into bite-size plots was effective in encouraging bids, as Hong Kong’s property market grapples the city’s worst recession in decades.

Wharf’s winning bid was higher than a market valuation of between HK$7.78 billion and HK$11.15 billion.

“The winning bid was better than expected, reflecting the developer’s confidence in the market outlook for super luxury housing, especially on The Peak,” said Thomas Lam, executive director at Knight Frank.

Wharf has sufficient experience of the luxury housing market on The Peak, where other projects are also on sale, which could create synergies, so it was reasonable for the developer to bid higher, Lam said. This transaction will have a positive effect on land and home prices on The Peak, he added.

“The group is one of the largest private property owners on The Peak, and has many years of experience meeting the ultra high expectations of buyers and residents for these super luxury properties,” Stephen Ng, chairman and managing director of The Wharf (Holdings) said.

Wednesday’s deal doubles Wharf’s land bank at The Peak to more than 500,000 sq ft, Ng said. As with other projects in Wharf’s portfolio, the Mansfield Road project will be managed, developed and marketed by Wheelock Properties.

Lam estimated that the project’s total development cost could be about HK$15 billion to HK$16 billion, and expected it to sell for HK$90,000 per square foot.

In October 2018, the government failed to sell a bigger plot with a much higher valuation at the same site. It then divided the plot into two pieces, one of which was sold on Wednesday. It is about 70 per cent of the bigger parcel of land in size. The government also changed the sales conditions after the sale flopped in 2018 to give developers more flexibility in terms of usage.

Developers were allowed to apply for lease modifications and share recreational facilities and parking spaces with the parcel of land on the remaining 30 per cent of the original site in the future, creating potential synergies in the development of the two sites.

Tenders for “smaller sites can reduce investment costs for developers and attract more of them to participate”, said James Cheung, executive director of Centaline Surveyors. He estimated that the plots could bring in about HK$10.4 billion in sales.

Knight Frank’s Lam called on the government to offer the other site – the reaming 30 per cent of the original site – on Mansfield Road “as soon as possible”. Because of the Wharf transaction, the price of the smaller site could be between HK$45,000 to HK$47,000 per square foot, he estimated.

Wednesday’s sale also boosted the proceeds from land sales for the current financial year to be about HK$55 billion for the government, Lam said.

The average prices of lived-in homes are likely to drop further after October’s surprise decline, as a worsening coronavirus outbreak saps confidence and raises concerns about the prospects of a speedy recovery.

The city’s overall economy continues to be sluggish after Hong Kong was hit by a fourth wave of the pandemic. Border restrictions have greatly reduced transactions in the luxury housing market. Moreover, the government announced earlier that it would shelve a vacancy tax bill to relieve pressure on developers amid concerns that luxury properties will take a long time to be absorbed by the market.

Hang Lung Properties bought the United States Consulate’s former staff quarters at 37 Shouson Hill Road on The Peak in September for a lower than expected HK$2.57 billion, or about HK$54,137 per square foot. Another house at 28 Barker Road, on The Peak, measuring 4,270 sq ft sold for HK$530 million this month, at a loss of HK$12 million.

The tender for the Mansfield Road parcel attracted the Who’s Who of Hong Kong’s biggest developers, such as Sun Hung Kai Properties, CK Asset Holdings, Henderson Land Development, K Wah International, a consortium of Kerry Properties, Sino Land, Empire Development Hong Kong (BVI), New World Development and Beaumont Hill, as well as a consortium of Lifestyle International Holdings Limited and C C Land Holdings.

The parcel is likely to be developed into a mixture of villas and luxury flats, said Centaline’s Cheung. Mount Nicholson, the last land parcel sold by tender on The Peak, has been developed into the most expensive residential enclave in Asia over the past decade, with an unidentified buyer paying HK$500 million for a 4,266 sq ft flat in 2017.