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Hong Kong stamp duty

Henderson challenged on flat refunds

PUBLISHED : Tuesday, 06 July, 2010, 12:00am
UPDATED : Thursday, 07 May, 2015, 12:48pm

The government is pushing Henderson Land to explain why it didn't keep all the deposits and try to recover its losses after sales of 20 flats at its controversial 39 Conduit Road project fell through.

Instead, the developer refunded more than HK$175 million to a handful of shell companies who failed to complete the deals - trumpeted earlier as setting a new benchmark for luxury property prices - according to documents presented to lawmakers yesterday.

Henderson, which has rejected suggestions the sales were a ploy to boost prices, provided legislators with the seven replies it sent to the Lands Department in response to its queries. The department released eight letters it wrote to the developer between March 18 and June 30.

The moves failed to satisfy some lawmakers, who said there were many abnormalities in the deals and the documents had not answered all the questions. The Legislative Council's housing panel then decided to invite representatives from Henderson and the department, as well as buyers who scrapped the deals, for a special meeting next Monday to give further information.

The latest development came about two weeks after Henderson announced that 20 of the 24 flat sales at the Mid-Levels project, sealed in October and November, had been cancelled, including a world record HK$439 million sale of a top-floor duplex. The sales fuelled optimism in the property market, leading to price increases.

Apart from the alleged record prices, the case drew attention when the developer said it had allowed the buyers - through verbal agreement only - a lengthy delay before completion of the sales. It was also found that the properties were bought using 24 shell companies registered in the British Virgin Islands. All used the same law firm - Lo & Lo Solicitors.

In the correspondence between the government and the developer, Henderson said it only retained 5 per cent of the money it received from the buyers, instead of the full amount given as a deposit.

The company therefore refunded more than HK$175 million, out of the HK$360 million handed over, to the buyers after the cancellation, drawing a question from the government.

In a letter to Henderson dated June 22, District Lands Officer Raymond Lau wrote: 'It appears rather unusual that you have chosen to use Clause 11(3) - which entitles you to retain the sum of 5 per cent of the total purchase price of each unit - instead of Clause 16 - which entitles you to forfeit all sums paid by the purchasers and recover any deficiency in price and expenses for resale from the purchasers as damages - to deal with all these 20 uncompleted transactions.'

The developer wrote back to say that under the contract they could only keep 5 per cent of the deposit.

On why it did not recover losses for resale, it pointed to the fact that 'each of the purchasers in question is a shelf company with an issued capital of HK$1 [a common feature of the Hong Kong property market]. There is every reason to believe that none of them has any real assets and it is quite unlikely that any of them would be in a position to pay any substantial damages to us. It would not be sensible to incur legal costs for the sake of empty judgments'.

The letter went on: 'Further, we maintain an optimistic view of the luxury property market and substantial deficiency in price on resale of the properties concerned is not anticipated.'

At the housing panel meeting, Civic Party legislator Alan Leong Kah-kit said he did not quite understand why Henderson would not ask for recovery of losses on resale, while Democrat Lee Wing-tat said the sum could reach HK$800 million.

Lawmaker Leung Kwok-hung asked the government to provide information about how much other developers would charge if buyers cancelled a deal.

Secretary for Transport and Housing Eva Cheng refused to say whether the administration was happy with Henderson's replies, because law enforcement agencies such as the police were now investigating the case.

'We firmly believe that transactions in the private residential market have to be fair and transparent. We are absolutely against activities such as false transactions and dissemination of fake information,' Cheng said.

Democrat James To Kun-sun said the police might need to investigate why many of the cancellation letters from the buyers had the same format.

A spokeswoman for Henderson said it would consult its legal expert to decide whether the company would attend the meeting on Monday.

According to the stamp duty ordinance, the cancellation of the 20 transactions means no stamp duty needs to be paid on them.