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Hong Kong land sale
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As Evergrande, Kaisa and other Chinese developers fall on hard times, Hong Kong’s bargain hunters swoop in

  • Mainland Chinese developers bought seven sites each year during the Hong Kong government’s 2016 and 2017 land sales programmes
  • By 2018 and 2019, their activities had dwindled to three each year, with only one deal so far in 2021
Hong Kong land sale
Sandy Li
Pearl Liu
Sandy LiandPearl Liu
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Lui Che-woo, one of Hong Kong’s wealthiest men with a casino, hotels and apartments under his belt, met his match in late 2016 when his company K Wah International lost a bidding war to a Chinese airline that was on a land grab in the world’s most expensive real estate market.

The HNA Group, a conglomerate built around Hainan Airlines, paid a record HK$8.84 billion (US$1.13 billion) for a residential land plot at Hong Kong’s former Kai Tak airport, paying substantially over the market’s valuation. It was the opening salvo in a HK$27.22 billion shopping spree over four months that ended with HNA owning four parcels of prime land, each setting a fresh price record.

“Mainland companies have the ability to do it, but we don’t,” Lui said in a November 24, 2016 interview with the Financial Times, adding that the flood of money from Hong Kong’s northern border was “distorting” the city’s land prices.

Lui, Asia’s second-richest man of 2016 according to Fortune, with his wealth estimated at US$8 billion, was not alone in feeling the threat of mainland China’s developers, whose deep pockets were lined by cheap – and sometimes unauthorised – financing. Wang On Properties Limited, a HK$1.3 billion developer, found Hong Kong’s land bank so unaffordable that it turned to renovating ageing flats for growth.
The casino and property magnate Lui Che-woo, speaking during the Lui Che Woo Prize for World Civilisation award Hong Kong on 19 August 2019. Photo: David Wong.

“Fierce competition for land is unavoidable in government tender exercises, and it’s hard for small players like us to get prime sites,” said Wang On’s chief executive Nick Tang Ho-hong, the son of the firm’s controlling shareholder Tang Ching-ho.

So is Far East Consortium International, a medium-size developer with HK$6.2 billion in capitalisation. It found Hong Kong’s land prices so unaffordable that it pivoted its growth strategy offshore to look for land in Australia, Singapore and the UK.
Land sales by government tender in Kai Tak area
HNA, based in the Hainan provincial capital of Haikou, was neither the first nor the last of mainland China’s property developers to be snapping up land in Hong Kong. By the time HNA added a fourth Kai Tak plot to its portfolio in March 2017, China-based developers owned half a dozen parcels in the area designated as Hong Kong’s second central business district, taking up 53 per cent of the total square footage and 62 per cent of value.

Elsewhere in Hong Kong, mainland developers were busily grabbing land, parking their capital in the city’s fixed assets to get ahead of what was then a depreciating renminbi.

“Hong Kong’s assets are highly liquid, compared with property in mainland China, especially those in lower-tier cities,” said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institute. “They are a life-saving straw for Chinese developers struggling to survive the winter of China’s real estate sector.”

Mainland Chinese developers bought seven sites each year during the Hong Kong government’s 2016 and 2017 land sales programmes. Their acquisitions, often at above market prices, unnerved the city’s elites so much that some conveyed their concerns to China’s government officials.

“Major Hong Kong developers have lots of ways to reflect their views to Beijing at the National People’s Congress (NPC), or through Chinese officials [stationed] in the city,” said Lau Shui-kai, vice-president of the semi-official Chinese Association of Hong Kong and Macau.

Hong Kong’s business elites and their representations in China’s legislature.
The tide has since turned, as a crackdown by China’s central bank and financial regulators on leveraged acquisitions starting in 2017 forced HNA to dispose of all of its assets. Within months of buying them, HNA sold all four Kai Tak plots to Hong Kong’s developers. In the subsequent two years, the group went on an asset stripping programme, putting everything from its stake in Deutsche Bank to its chairman’s US$56 million Hong Kong penthouse on the sales block.
The group went bankrupt in January and had its sprawling operations broken into different parts, while its founder Chen Feng was detained by police for investigation into unspecified “suspected crimes.”
The reversal of fortunes also caught other mainland developers who had been active in Hong Kong, particularly those that breached the Chinese central bank’s so-called “three red lines” of debt limits.
They comprised the who’s who of China’s biggest debtors, each one facing its own financial reckoning with creditors and bondholders: China Evergrande Group, Kaisa Group Holdings, China Aoyuan Property Group and Goldin Financial Holdings.
The biggest of them all is Evergrande, with the dubious honour as the world’s most indebted developer with more than US$300 billion in liabilities, which defaulted this week on a bond repayment after three close calls since October.

Led by the property magnate Hui Ka-yan, with businesses from bottled water to electric cars, Evergrande has been trying to sell its assets in Hong Kong to service its debt.

On the top of Evergrande’s disposals list is its 26-storey flagship office tower at the Wan Chai waterfront that was on the market for an estimated US$1.7 billion. Yuexiu Property, a developer run by the Guangdong provincial government, backed out of a deal in October to buy the tower.
Evergrande did sell half of a residential project called The Vertex in Cheung Sha Wan to its partner VMS Group in October for an undisclosed sum. Facing a slew of bond payments since September, Evergrande is also offering to sell a residential plot in Yuen Long in the New Territories, which can yield 2.2 million square feet (204,000 square metres) in gross floor area.

Hui, whose wealth was estimated at US$9.1 billion by Forbes, has put some of his personal assets on sale to repay Evergrande’s debt. Three adjoining mansions of up to 5,400 square feet each at 10 Black’s Lane on The Peak in Hong Kong were remortgaged last month for HK$1.1 billion in financing.


Another buyer-turned-seller is Kaisa, the Shenzhen developer that became the first mainland company to miss paying an offshore bond in 2015. It joined Evergrande this week in default after missing a December 7 deadline to pay a US$400 million offshore bond.

Kaisa, with US$11.6 billion of outstanding notes, disposed of two land plots and an office floor in Central for about HK$12 billion within three weeks, the most aggressive seller of assets in Hong Kong in the past month.

Kaisa’s founder Kwok Ying-shing, who pleaded for more time last month when his company missed a redemption deadline on a wealth management product, let go of the company’s very first land plot in Hong Kong. He sold the site in Tuen Mun to Hong Kong billionaire Francis Choi Chee-ming for HK$3.78 billion, Reuters said last month. Kaisa recovered around HK$1.3 billion cash after repaying the loans it borrowed for the land, which it bought for HK$3.5 billion in January 2020.

A week later, Kaisa sold a Kai Tak plot to New World Development and Far East Consortium for HK$1.9 billion cash and HK$6 billion in assumed debt, according to a stock exchange filing.

Kaisa also found a buyer to pay HK$186.4 million for 38th floor of The Center, which was the world’s most expensive real estate deal when the entire tower was sold for US$5.2 billion in 2019.
China’s property developers are squeezed by the central banks’ limits on borrowings. SCMP Graphics
“It’s not surprising to see mainland developers selling their land in Hong Kong if they need to raise cash,” said Chris Hoong Cheong Thard, managing director of Far East Consortium, who teamed up with New World Development last month to pick up a Kai Tak plot from Kaisa for HK$7.9 billion, a discount of almost 20 per cent from its June 30 audited valuation. “The [Kai Tak] site was marketed to many people,” Hoong said. “We bought it as we believe it was a reasonable price.”

The waterfront plot, known as Area 4B Site 4, is located on the narrow strip of land protruding into Victoria Harbour that was formerly used as the airport’s runway. Kaisa had bought it last year from the Chinese billionaire Pan Sutong’s Goldin Financial Holdings, which was grappling with its own debt woes.

Goldin, which is building one of China’s tallest buildings in Tianjin, paid HK$8.9 billion in November 2018 for the site, in a transaction that brought a sigh of relief to Hong Kong’s property industry as its higher price than its neighbour allayed fears of a market downturn.
China Overseas Land’s One Victoria apartments under construction on 9 July 2021 on the former airport runway at Kai Tak, now transformed into residential and commercial land offering views of Victoria Harbour. Photo: May Tse.

Aoyuan, based in the Guangdong provincial capital, had been holding fire sales of its Hong Kong assets.

The developer last month sold 86 per cent of a 54-year-old residential building at Robinson Road at the Mid-Levels for HK$900 million, reporting a loss of HK$176.6 million from the disposal. It’s also offering to sell an industrial building called the AOffice46 in Kwai Chung for HK$800 million, a discount of nearly 16 per cent from its 2018 purchase price of HK$950 million.

The losses reflected the reckoning for Chinese developers, who preferred to subdue their rivals by paying way over market valuations. HNA’s first Kai Tak plot in November 2016 was a staggering 153 per cent over the most recent transaction in the neighbourhood two years earlier.

Kaisa’s first land plot in Tuen Mun was bought last year for HK$3.5 billion, 20 per cent more than the next bid at HK$2.88 billion, according to records released by the Lands Department. The developer had wanted to show Hongkongers what Kaisa was made of, regardless of the cost, a former employee said, speaking on condition of anonymity.

China Evergrande Group applied to build a cluster of villas near Hong Kong’s Wetland Restoration Area at Yuen Long in the New Territories, including a centrepiece that was described as akin to the Palace of Versailles. Photo: Handout

After the Hong Kong Monetary Authority (HKMA) ordered the city’s banks to cut their property loans by 10 percentage points to 40 per cent of a land plot’s assessed value, the activity dwindled by half to three a year by 2018 and 2019.

The only active mainland Chinese developer this year is CC Land’s founder Cheung Chung-kiu, who hails from Chongqing. Cheung, also known as Zhang Songqiao, was a member of the Active Pursuit consortium that paid HK$7.25 billion in February for a luxury residential plot at The Peak.

HNA’s four Kai Tak plots all ended up in the hands of Hong Kong’s major developers. Wheelock Group, run by Douglas Woo – son of Hong Kong tycoon Peter Woo Kwong-ching – picked up two pieces of land from HNA for HK$13.25 billion. Henderson Land Development, owned by the family of founder Lee Shau-kee, picked up another two sites for HK$16 billion in total.

The four sites totalled HK$29.25 billion, about 7 per cent more than what the Chinese developer paid for.

“We will not prohibit others from taking part in bids for the government’s land,” said Wheelock Properties’ chairman Stewart Leung Chi-kin, who also chairs the powerful lobby group Real Estate Developers Association (Reda). “Hong Kong is a free market.”


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