Investment Return of the Kai Tak Sports Park (KTSP) in Hong Kong

The Kai Tak Sports Park (KTSP) project has finally been awarded by means of a DBO (Design, Build and Operate) Contract to a consortium led by the local developer The New World Development, at about HK$30b. The site is a 28-hectare development and the contract is a 25-year contract with 5 years’ design and construction period and 20-year period for operations. [1]

The facility will include a 50,000-seat multi-purpose stadium, a 10,000-seat indoor arena and a 5,000-seat community sports ground, plus shopping and dining space.

However, the government estimated that the net operating profit of the KTSP can only achieve $291m p.a. (See Table 1) In other words, the development could never be payback (103-year?!), not to mention the 20-year operation period. Thus, all the $30b initial investment has to be paid by the government.

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Table 1 Operating Income and Expenditure of KTSP. Source:

In other words, for such an operating profile, the maximum capital investment can be $3b, rather than $30b (1/10 of the current one). Let’s estimate the Internal Rate of Return (IRR) of KTSP project if the design and construction costs are $3b.

Chart 1 shows the cash flows of the project, with the first 5 years cash outflows for design and construction, and the remaining 20 years cash inflows for net operating income (NOI). All amounts are in MOD.

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Figure 2 The Cash Flows of KTSP is D&B cost is $3b

As shown in the worksheet, the estimated IRR for the project is 4.9%, if the D&B cost is $3b. It exceeds the government’s internal guidelines of exceeding 4%. Unfortunately, the current D&B cost is $30b, there can never be a reasonable IRR estimable.

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Figure 3 The estimation of the IRR

As a conclusion, from public accounting perspective, KTSP project would not be justified financially if the design and construction cost exceeds $3.312b (IRR = 4%).


[1] KTSP (2019) Homepage.

ecyY is the Founder of Real Estate Development and Building Research & Information Centre REDBRIC

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