Hong Kong Real Estate Development, Transit-Oriented by Nature

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Above: Real Estate students meeting with MTR outside of the International Commerce Centre at Kowloon Station, Hong Kong

Coming from New York City, we know what it is like to live in a highly populated and dense city. Fitting its 7.4 million residents into just over 1,100 square kilometers is remarkable and this stat becomes mind-boggling when you realize that three-quarters of Hong Kong’s land is green. Of course this results in extremely high rents and prices (even by New York standards) and it also results in innovative developments to cope with the severe lack of developable land.

One of the most innovative development models that we have encountered on our real estate focused trek has been the Rail + Property model implemented by the MTR (Hong Kong’s mass transit railway). With the expressed purpose of capturing the value creation that a new railway line will have on the surrounding land, the publicly-traded MTR is able to operate at a profit. When the MTR develops a new line, they obtain land development rights from the Hong Kong government. They then work with a development partner to build on top of the station site and share in a portion of the development profits, usually by receiving a % of profits, a fixed lump sum, or a portion of the properties built on the station. In fact, the vast majority of profits earned by the MTR is from the management of assets developed as part of the Rail + Property model. While many cities have been focused on transit-oriented development over the past few years, Hong Kong and the MTR have been building on and around transportation centers for decades. Approximately half of all subway stations have a development on top. As we learned from MTR (and experienced as we moved around the city on our own) the MTR is exceptionally well-run and clean with over 99.9% of trains running on time.

Following our discussion with Kelson Chan, Strategy and Planning Manager, and Steve Yiu, Principal Advisor, Property Planning, we toured a prime example of the Rail + Property model at Kowloon Station, one of Hong Kong’s most busy subway stations. The station is complete with underground retail and is the site of the International Commerce Centre, Hong Kong’s tallest tower.

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Above: Kowloon Station, Hong Kong

The MTR is a relatively new public transportation system and was established in the 1970s. Building an extensive subway system like Hong Kong’s is a daunting task especially when you consider the financial challenges that many public transportation systems face (MTA riders – sound familiar?) The Rail + Property model efficiently allows for the capture of value increase resulting form investments made in infrastructure. Hong Kong’s highly dense population and low car-ownership makes this city the perfect location for this type of model. It will be interesting to see how this model can be adapted in other cities.

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