Railway depots and Hong Kong property development

With so little free space in Hong Kong, railway depots aren’t just open air railway tracks and workshop facilities, but spaces that combine commercial property developments with the services need to keep the trains running.

MTR train departs Kowloon Bay station: Kowloon Bay depot is located alongside, underneath the Telford Garden housing estate

The MTR Corporation was established in 1975 as a private company under explicit government control, with the government ordinance stating that the corporation was required to “conduct its business according to prudent commercial principles”. The result was integrated “rail and property” development model, which has funded the expansion of the MTR network ever since.

The first railway depot to be built on the MTR network was at Kowloon Bay. Located in western Kowloon in the shadows of Kai Tak Airport, the depot is situated at ground level, with a concrete deck over the top carrying the ‘Telford Gardens’ complex – a large shopping centre and 4,992 apartments across 41 towers.

Train entering the east end of the shed at Kowloon Bay depot: buildings on the podium as with every other MTR depot

The fledgling Mass Transit Railway Corporation was handed the land at Kowloon Bay by the Hong Kong government, with the proceeds of the property development helping to fund the rest of the initial MTR system. The presentation ‘The Making of the Mass Transit Railway in Hong Kong‘ by Fujio Mizuoka (Graduate School of Economics, Hitotsubashi University, Tokyo) has more to say on the topic:

  • The colonial government offered the land of $170 million for the purpose of car barn itself and HK$165 million for the title to develop the space above for residential and commercial purposes, for free.
  • In exchange for this government offer, the MTR Corporation issued equity of the same value and the colonial government accepted it.
  • In short, the Telford Garden constituted an equity injection of HK$335 million from the colonial government.
  • Property development raised 18.6% of the construction cost to the MTR Corporation for the Modified Initial System.
  • Revenue from property development depended, however, much upon the market conditions and therefore rather uncertain.
  • The colonial government offered unusually favourable terms for land tenure in releasing the Crown land, especially for the years when property market is in stagnation.
  • In all, the MTR Corporation developed 19 projects along the Modified Initial System, Tsuen Wan Extension and Island Line put together.

The same development model was followed during the construction of the Tsuen Wan line, where the depot is located beneath the ‘Luk Yeung Sun Chuen’ development – 4,000 apartments across 17 towers.

Track fan outside Tsuen Wan depot

Finally, the construction of the Island line resulted in Chai Wan depot and the even more massive Heng Fa Chuen residential estate, with 6,504 apartments across 48 buildings.

Chai Wan Depot

The Kowloon Canton Railway Corporation also entered the property game in the 1980s, developing the ‘Jubilee Garden’ estate atop their existing Ho Tung Lau Depot outside Sha Tin in the New Territories, where 9 blocks of residential buildings house a total of 2,260 apartments atop the concrete podium.

Train depot under apartment towers

In the 1990s the combination of railway extensions and property development was stepped up another notch, with the construction of the new Lantau Airport Railway being coupled with the establishment of entire new town at Tung Chung, with a target population of 250,000 people.

Leaving Tung Chung behind

Called ‘value capture’, the principle is explained by Robert Cervero and Jin Murakami in their 2008 paper “Rail + Property Development: A model of sustainable transit finance and urbanism“:

MTRC does not receive any cash subsidies from the Hong Kong government to build railway infrastructure; instead it receives an in‐kind contribution in the form of a land grant that gives the company exclusive development rights for land above and adjacent to its stations. These grants relieve MTRC from purchasing land on the open market. To generate income, MTRC capitalizes on the real‐estate development potential of its stations.

The specific mechanism for capturing rail’s value‐added is as follows. MTRC purchases development rights from the Hong Kong government at a “before rail” price and sells these rights to a selected developer (among a list of qualified bidders) at an “after rail” price.7 The differences are often substantial and are able to cover the cost of railway investments.

The Hong Kong government, the majority shareholder of MTRC, seeds the process by granting MTRC exclusive development rights based on the “greenfield” site value (i.e., pre‐rail price). MTRC also negotiates a share of future property‐development profits and/or a co‐ownership position from the highest bidder. Thus MTRC receives a “front end” payment for land and a “back end” share of revenues and assets in‐kind.

Decisions around what land to develop are complex, and set in parallel with the Hong Kong government. Cervero and Murakami continue:

What triggers rail and property projects are future plans to extend MTR lines or construct new ones, consistent with regional land‐use and urban development goals set by Hong Kong government.

MTRC staff works closely with government planners and transportation professionals to define and assess the comparative costs of different alignment and station‐siting options. They also discuss property development opportunities that enhance financial returns of the railway investment and promote long‐range planning objectives.

The assembly of land uses to be built at the station is largely determined by market demand, constrained by zoning regulations. Commercial property development has occurred mostly at and near central‐city MTR stations while residential projects have been built mainly in outlying areas and at terminal stations.

The end result is the corporation deriving around 60 percent of total income from property development – more than twice as much as farebox revenues.

Footnote

Despite the Airport Express railway and Tung Chung lines marking a massive expansion of the MTR Corporation property portfolio, the depot for the new route was a break from the past – built on reclaimed land at Siu Ho Wan on the shores of Lantau Island, almost two decades after opening the depot is still just a shed in the middle of nowhere.

Airport Express train beside the main shed at Siu Ho Wan depot

Further reading

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6 Responses to Railway depots and Hong Kong property development

  1. xahldera says:

    The Siu Ho Wan depot being a shed in the middle of nowhere may change soon. Last March when I was in Hong Kong, there looked like work underway along the Airport Express and Lantau Expressway to prepare the land for more apartments. At least that is what it sounded like according to my uncle.

    • Development at Tung Chung has been heading east for some time, but I’m not sure whether it’ll eventually link up with Siu Ho Wan.

      The current satellite imagery on Google shows some construction work in the area, but I believe it is just the approach to the new Hong Kong–Zhuhai–Macau Bridge:

      https://www.google.com/maps/@22.3040486,113.9689171,2563m/data=!3m1!1e3?hl=en

      • xahldera says:

        That would make some sense however given the lack of space in Hong Kong in general, I would not be surprised if they end up making use of some of the reclamation for flat/apartment building. I also seemed to recall there was some work going on a bit further east, however as I was a bit jetlagged at that point I may not have been looking carefully. I’m due to go back next year to visit relatives so I’ll have another look next time I’m on the bus travelling along the highway.

  2. Matthieu says:

    The government has now released long term plans to build over Siu Ho Wan Depot and add a station there.

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