Swire Properties, together with Hong Kong-based property fund Gateway Capital, last year bought the semi-completed 1.47 million square foot development for HK$4.8 billion.

For that price Swire gained an 80 per cent stake in the retail portion of the development that straddles two separate sites on Sanlitun, while Gateway took 20 per cent. Swire also acquired 100 per cent of the 99-room boutique hotel.

Swire Properties said the firm's total investment in the project was likely to amount to about 6 billion yuan.

The consortium originally set aside 500 million yuan to upgrade the retail portion of the project, according to sources.

"But the overrun has more than doubled from the original budgeted sum," said a source, adding that the extra investment was to redo the interior fittings in the retail portion to meet the higher standards required by Swire and expenses on pre-opening and marketing.

Gateway Capital chairman Goodwin Gaw said the cost overruns were mainly due to "our much higher specifications" but added that the final unanticipated increased costs would amount to less than 5 per cent of the initial project cost.

He also blamed higher inflation for the increased costs.

"There is also a cost overrun due to higher construction costs. Everything is getting more expensive on the mainland. Prices for steel and cement are increasing rapidly," Mr Gaw said.

Over the past 18 months, the contract price for hot-rolled steel used for construction has surged 30 per cent to 4,842 yuan per tonne, according to figures provided by the mainland's largest steel producer, Baoshan Iron and Steel.

Cement prices jumped 7 per cent to 600 yuan per tonne last year, and analysts said there would be further rises this year.

In addition the two partners needed to meet tenants' fitting-out requirements.

"Some of our tenants are international retailers who want to change the flooring and even replace exterior glass walls," Mr Gaw said.

The southern section of Sanlitun's retail portion is due for opening in the middle of this year to tap retail opportunities from the Olympic Games, which start on August 8.

Major tenants at the southern section include Adidas, which has committed to take up 3,159 square metres to set up its largest store in the world, while others include Montblanc, which has taken 1,700 sq metres, and French cosmetic retailer Sephora, which has leased 511 sqmetres.

Swire said it planned for additional investment on acquiring the Village at Sanlitun.

"The current estimate reflects the fit-out costs for the hotel and a variety of improvement works that will enable us to create a vibrant new retail, leisure and entertainment destination in Beijing," the company said.

Swire last month said it had committed 20 billion yuan for four mainland projects - two in Beijing, one in Guangzhou and one in Shanghai.

Besides the Sanlitun development, Swire's share of investment in three forthcoming projects includes a 6 billion yuan investment at its 97 per cent owned retail-office-hotel development named Taikoo Hui in Guangzhou; an up to 7 billion yuan investment at its 50 per cent-held retail-office-hotel development in Shanghai (with HKR International (SEHK: 0480) holding the other half); and a further 2 billion yuan at its 50 per cent-held retail-office-hotel project jointly developed with Sino-Ocean Land (SEHK: 3377, announcements, news) Holdings in Chaoyang, Beijing.