In Focus
COMMERCIAL PROPERTY | Staff Reporter, Hong Kong

What the deferment of $32b Kai Tak Sports Park means for Hong Kong

It is reflective of public-private partnership difficulties.

Long-delayed and debated plans for the HKD32bn Kai Tak Sports Park reflect a poor track record of PPP implementation in Hong Kong. With poor public perception of PPPs and few fiscal pressures, we believe that the PPP model will continue to face challenges in Hong Kong, according to BMI Research.

The ongoing debate over the use of a public-private partnership (PPP) for the HKD32bn (USD4.1bn) Kai Tak Sports Park reflects the lingering difficulties of the PPP model in Hong Kong, an otherwise mature and business-friendly construction market.

The project is being tendered on a Design-Build-Operate (DBO) basis as the government seeks to draw in private sector expertise into developing sports infrastructure.

Here's more from BMI Research:

While PPPs are becoming increasingly popular in developed and emerging infrastructure markets in Asia, they have had a chequered past in Hong Kong, with previous projects failing to meet usage projections and requiring additional subsidies, or eventually being converted to public projects.

We believe the proposed sports park project will face similar challenges, diminishing the appeal of the PPP model for the project and further eroding the role of PPPs in Hong Kong's infrastructure industry.

Underpinning our view is a record of poorly planned and executed projects, which have multiple times ended in the government intervening and converting them from PPPs into public projects. A key example is the HKD8.2bn (USD1.1bn) Kai Tak Cruise Terminal, adjacent to the planned site of the sports park.

Initially proposed as a PPP in the 2000s, it was taken over as a publically procured project following a lack of interest from private parties. After opening in 2012, the facility has consistently missed usage projections and is a frequent target of criticism for being an inefficient use of public funds and waterfront real estate.

Similarly, the Hong Kong-Macau-Zhuhai Bridge was first proposed as a PPP but later converted to a publically procured project to address concerns of construction delays.

Regarding the Kai Tak Sports park, we highlight the lack of comparable projects in Hong Kong, combined with an uncertain revenue stream is likely to deter private participants. Furthermore, concerns about a prolonged construction period - especially for a project that was first proposed more than 10 years ago - will add to investor caution which could prompt the government to switch to a traditional procurement model to expedite the project.

Finally, lingering public and political opposition could further delay the project, especially amidst growing political risk in Hong Kong as the divide between pro-establishment and pro-democracy political groups grow.

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