Shell Centre Launches in Hong Kong

Just a quick post to celebrate the Hong Kong launch of the Shell Centre development.

Sadly for our Hong Kong readers, by the time you read this post you will have missed the “exclusive private cocktail event” to “welcome” the Shell Centre to Hong Kong, held at Savills Hong Kong office.

With this new launch we learn yet more about the real sales values of this centrepiece in London’s luxury housing market; and how wildly they differ from the ‘future values’ the developers told the Secretary of State that the development might achieve when looking at the affordable housing they could deliver.

Savills’ Values

Just to recap, during the planning process the developers of the Shell Centre told the planning authorities that the development was ‘unviable’ and couldn’t sustain any affordable housing. This was done on the basis of a set of valuations of the sales values of the new apartments in-putted into a viability assessment [For a full explanation of how the viability process works and the background to this story see this post]. These figures were provided by Savills and Knight Frank who valued the apartments at an average of £1275 per square foot. These valuations were thought to be a bit low by Lambeth Council’s valuers, BNP Paribas, who raised them by 10% to £1330 per square foot.

However, I revealed that at the same time, Knight Frank and Savills were telling investors in the city that the development would achieve much higher values: £1641 per square foot.

Obviously, if the developers were undervaluing their property, then they were also underestimating their profits and the amount of affordable housing the development could sustain.

During the proceedings, the representatives of the developer John Rhodes, from Quod planning consultants and Tim Corner QC told a Planning Inspector and then a High Court Judge that the figures for the investors were based on the possible values the development might achieve in the future. They were speculative and the lower valuations were the correct values to use for planning purposes. I argued at the time that the investors figures were far more realistic.

In a previous post on this site, we revealed how when the first buildings went on sale, just months after the court battle had ended, they were at valued at significantly more than the values in the the ‘speculative’ investor presentation. That seemed to suggest that the surveyors had deliberately underestimated the values given to the planning authorities in order manufacture a loss of affordable housing.

But that was just the cheapest residential building at the back of the site. Now, with the Hong Kong launch of Southbank Place, the second cheapest building, building 4 at the back of the development has come onto the market.

It seems that with each new building that comes onto the market, the real values of the Shell Centre move further and further away from the values created for the planning process. The evidence mounts that Knight Frank, Savills and Quod got their viability assessment spectacularly, and conveniently, wrong.

The apartments going on sale to coincide with the Hong Kong launch are in a building being called “Thirty Casson Square”. In the Shell plans that is building 4b.

Building 4b is valued at £1254 per square foot on average in the Shell viability assessment for the purposes of working out the profit the development will generate and how much affordable housing it can sustain.

So how does this compare to the sales values being marketed in Hong Kong? The Shell Centre website currently lists the available apartments. Apartment 204, on level 2, the bottom of the building is on sale for £900,000. That is £1404 per square foot.

Hmmmmm, perhaps apartments at the top of the building come in at a lower rate? Apartment 2303 is on the 23rd floor. It is currently on the market for £2m or £1940 per square foot. In fact the cheapest apartment currently on the website, a tiny 394 sq foot studio apartment (yours for just £655,000) comes in at £1662 per square foot.

You get the picture. The valuations created for the purposes of the viability assessment are clearly wildly different from the real values the development is being marketed as, and even higher than the investor presentation that the developer’s representatives claimed were “potential future values”.

So a question, one which I asked RICS some time ago, and is still unanswered. Is it really possible, that even taking into account the timing difference between the viability assessment and the apartments coming onto the market, that Knight Frank and Savills got their valuations so spectacularly wrong? It is really possible that these two leading companies were unaware of how much they themselves would later put the homes on the market for? And will RICS do anything to improve standards in this important industry? I will update you in due course when RICS provides some answers.