Hong Kong Firms Recover Properties From Distressed Chinese Developers, Real Estate News, ET RealEstate

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HONG KONG: After years of expansion in Hong Kong, cash-strapped Chinese developers are reducing their presence in one of the world’s most expensive real estate markets, allowing businesses in the financial hub to reclaim some of their assets at ridiculous prices.

Developers including China Evergrande Group and Kaisa Group Holdings Ltd, struggling with multibillion-dollar debt, have sold some assets in recent months to developers in Hong Kong to help ease liquidity stress in their country.

There’s more to come – Aoyuan Group, which this week extended the repayment date for onshore asset-backed securities, is trying to get rid of more properties in Hong Kong to raise capital, two sources familiar with the case.

Aoyuan plans to sell a redeveloped office building in Kwai Chung, east Hong Kong, and the bidders are likely to be local investors or family offices, the sources said, declining to be named because the information is confidential.

The deal is expected to sell for less than what Aoyuan paid, the sources added. Aoyuan bought the building for HK $ 950 million ($ 121.83 million) in 2018, and realtors estimate its current valuation at less than HK $ 800 million.

This will follow a deal struck in mid-November, when Aoyuan sold some assets of a residential development in the Mid-Levels to a Hong Kong investor for a loss of HK $ 177 million.

Aoyuan could not be reached for comment via his officially listed email, and calls to the company went unanswered.

This trend will help Hong Kong’s real estate tycoons to further strengthen their dominance in Chinese-controlled territory.

In the past, deep-pocketed Chinese developers had moved aggressively to Hong Kong, outbidding cross-border rivals for top-notch sites in the city as they sought investment opportunities outside the mainland.

But now these developers are facing an unprecedented cash shortage due to regulatory restrictions as Beijing tries to reduce leverage in the industry, causing some to miss payments on bonds and wealth management products.

Some builders have resorted to selling their assets to meet their short-term repayment obligations.

Trend reversal

“This is a trend reversal,” said Reeves Yan, head of capital markets for CBRE in Hong Kong. “Chinese developers facing a cash crunch are now selling, and more of it is expected in the next few months (in Hong Kong).”

Kaisa, who missed coupon payments totaling $ 88.4 million owed earlier this month, on Wednesday sold a residential plot of land in Kai Tak, where Hong Kong’s former airport was located, to his counterparts. local Far East Consortium and New World Development for HK $ 7.9 billion. , according to a stock exchange document.

He recently sold another plot in Tuen Mun in northern Hong Kong to local investor Francis Choi for HK $ 3.78 billion, Reuters reported this week. The sale helped Kaisa recover around HK $ 1.3 billion in cash after paying off loans she borrowed for the land.

Kaisa declined to comment.

Evergrande, which is struggling with more than $ 300 billion in liabilities, transferred unsold units worth HK $ 2 billion in a residential development to its joint venture partner VMS Group, a Hong Kong finance company, a separate source told Reuters.

Evergrande did not respond to a request for comment.

So far this year, taking into account only public land sales and not private sales between developers, only one Chinese real estate company has been involved in a land purchase worth HK $ 7.3 billion. , in which it jointly invested with four Hong Kong counterparts.

This compares to a total of HK $ 39 billion spent last year and a record HK $ 58 billion in 2017, according to data compiled by CBRE.

Some financially stronger Chinese developers are still active in the market, however, according to industry watchers.

At the city’s last residential land auction in October, state-owned China Overseas Land was the only Chinese company among the sixteen bidders, although it did not win the award.

“Public developers are still rich in liquidity, but the real estate market will be more driven by investors from Hong Kong in the future,” said Tom Ko, executive director of capital markets for Cushman & Wakefield in Hong Kong.


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