Trust can be as crucial as profits
Three months ago, Cheung Kong was still adamant that its sale of Apex Horizon hotel suites was perfectly lawful. It shrugged off criticism that it was exploiting a legal loophole that enables buyers to evade a special stamp duty aimed at dampening property speculation. But in an embarrassing change on Monday, the developer agreed to revoke all transactions, after being warned by the Securities and Future Commission that the HK$1.4 billion project was a form of "collective investment" that required prior approval. Cheung Kong still maintains that it has done nothing wrong, but agreed to unwind the sales in light of the legal uncertainty.
That the sales have to be called off suddenly suggests there might have been problems from the beginning. The 470-odd first and second buyers probably based their trust on the belief that the leading corporation must have carefully scrutinised all relevant rules before going ahead. The repeated reassurances from top executives at the height of the controversy further boosted buyers' confidence. Those who expected decent investment returns are understandably disappointed.
An investigation by the securities watchdog is understood to be still ongoing, even though the deal has been cancelled. Under the Securities and Futures Ordinance, it is an offence to advertise or invite the public to invest in a collective investment scheme without authorisation. Depending on the outcome of the probe, whether the property giant has breached the law will be a matter for a court to decide.
The sale, as the government was trying to cool off the market has fuelled speculation of discord between tycoon Li Ka-shing and chief executive Leung Chun-ying. Yet officials in charge of land and housing were powerless in blocking the sales despite an outcry. Thankfully, the legal loophole has been plugged by the securities watchdog. It is interesting that the developer agreed to unwind the sales, saying it should support the government and that society needs harmony.
Business image and reputation can be as important as making money. Cheung Kong should offer compensation to buyers, a return of deposits with interest and payment for legal fees. The 40-day strike by container terminal workers has already undermined Li's image. The latest property sale row reflects unfavourably on company management. Commercial decisions and practices that cannot withstand the test of the law will only damage trust and, ultimately, profits.