News analysis

Strong HK property market a bulwark for HNA forced sale

HONG KONG • Three down, one to go. Fire sales are not usually associated with handsome profits; lucky for HNA Group Co that its asset hoard includes Hong Kong real estate.

The indebted Chinese conglomerate has sold the third of four plots of land bought just over a year ago to local developer Wheelock & Co for HK$6.36 billion (S$1.07 billion), the latest step in HNA's reversal of a US$40 billion acquisition spree. As with the first two, it looks to have made money.

Wheelock agreed to pay 15 per cent more than HNA tendered for the 7,318 sq m site at the former Kai Tak airport last year, when the Chinese company outbid the Hong Kong property heavyweights that have traditionally dominated the market.

Prices were already near a record at the time of HNA's purchase, but have continued to advance since. The premium Wheelock is paying is roughly in line with the 15 per cent increase over the past year in a widely followed index compiled by Centaline Property Agency. HNA sold the first two sites to another local company, billionaire Lee Shau Kee's Henderson Land Development Co, last month for a return of about 10 per cent after costs.

The fact that Hong Kong developers are willing to take assets off the hands of a distressed seller at premium prices shows the strength of confidence in the world's least affordable housing market, even as prospects for US monetary tightening put pressure on the city's currency peg to the US dollar.

While HNA has reason to be pleased, the buyers also look like they are on to a good thing. There is little immediate threat to Hong Kong's ultra-low mortgage rates, and government attempts to cool the market with measures such as higher taxes and down payment restrictions have proved ineffective. As Gadfly has written, the hottest segment has been sales of new homes, where developers have blunted the impact of mortgage curbs by offering top-up loans.

  • 15%

  • Wheelock agreed to pay 15 per cent more than HNA tendered for the 7,318 sq m site at the former Kai Tak airport last year.

Just 70 per cent of the 61,579 apartments sold last year were second-hand, according to data from Jones Lang LaSalle and Hong Kong's Lands Department. That share has fallen from 90 per cent in 2010. Secondary market sales volumes have slumped 50 per cent since the government began introducing cooling measures in 2009.

Developers are not constrained by rising loan-to-value limits set by the government and have offered other incentives such as covering the cost of stamp duty, which the government has raised to 15 per cent for buyers of second homes and 30 per cent for foreign purchasers.

Hong Kong developers are cash-rich and can afford to keep offering financing for buyers priced out of the second-hand market. That should ensure demand remains strong, even in a city where property prices have tripled since early 2009.

HNA has one more plot of land left at Kai Tak. Don't be surprised if that also goes to a local developer. Sun Hung Kai Properties and Li Ka Shing's CK Asset Holdings, among the biggest, have yet to snap up any of the Chinese group's cast-offs. Maybe it is time for one of them to wade in.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on March 10, 2018, with the headline 'Strong HK property market a bulwark for HNA forced sale'. Print Edition | Subscribe