Cheung Kong

Unknown pitfalls in buying hotel units

They may be cheaper than some HOS flats but the hidden cost and investment risks can be very high, say experts

PUBLISHED : Wednesday, 20 February, 2013, 12:00am
UPDATED : Wednesday, 20 February, 2013, 5:39am

With an average selling price that is lower than some Home Ownership Scheme flats in the city, the hotel units of Apex Horizon development built by Cheung Kong could prove attractive to buyers.

But experts warn that the hidden costs and investment risks of buying the hotel units could be very high.

Cheung Kong on Monday announced the sale of the first 65 of the 360 units in The Apex Horizon hotel in Kwai Chung at an average HK$5,200 per square foot of gross floor area.

This is cheaper than some Home Ownership Scheme flats. For example, flats at Kornhill Garden in Quarry Bay sell for as much as HK$9,000 per sq ft.

"The price is cheap, but the risk could be very high," said Vincent Ho Kui-yip, vice-president of the Hong Kong Institute of Surveyors.

The price is cheap, but the risk could be very high

Ho said that while a developer could legally sell flats according to the land lease - which in the case of Apex Horizon was zoned "non-industrial" - it was illegal for an individual owner of one of the units to use it as a residence.

"If any individual owner who uses the unit for residential use, rather than hotel use as required under the lease, the individual owner is operating against the rules. Whether or not other individual owners of the development, even if they follow the rules and treat their properties as hotel use, will be involved in any legal issues as a result, is still unknown," said Ho.

"If this happens, will it trigger the government into refusing to renew the licence for the hotel operator Apex Management Ltd, a unit of Cheung Kong, to run the hotel development?

"This is still unknown as such an investment product has not been offered in Hong Kong before."

Investing in the units could prove too complicated even for savvy investors, warned analysts. "Management fees could be high, and investors will need to pay tax on the hotel income he or she gains from the unit," said Adrian Ngan, an analyst at Citic Securities International.

"This is a complicated investment tool," said Ngan, who recommended a simple and direct investment such as buying a residential unit instead.

A property consultant who did not want to be named said running a hotel unit may be complicated, and owners should rely on the operator.

The owners would also have limited control over operating costs and management fees.

The marketing of the units has drawn widespread concern from lawmakers and lawyers, who are worried that it was unclear if sound title could be passed to the buyers, considering that the units were for hotel use and not for ordinary residential use.

Lawmakers Albert Ho Chun-yan and Paul Tse Wai-chun were studying the case and have flagged that they planned to invite both the developer and the government to the Legislative Council to explain how the sales could be justified.

Tse described the sales as a "potential Lehman saga" (a reference to the selling of mini-bonds to retail investors that went sour), where the legal risk of the "new property product" remained unknown.