Regulatory and law-enforcement agencies are looking into the cancelled sales of flats in a luxury Mid-Levels project that the developer said in October last year had fetched prices of up to a world-record HK$88,000 a square foot.
The government said this last night, without identifying the agencies, as an investment bank cut Henderson Land Development's credit rating, saying the failure of 20 out of 24 previously announced sales might have hurt investor confidence.
'Any fraud or deception in property sales is totally unacceptable,' the government said. 'As only four out of the 24 transactions of 39 Conduit Road were completed, relevant regulatory and law enforcement agencies are looking into and following up on the case.'
Credit Suisse Group cut Henderson's rating from 'outperform' to 'neutral'.
The developments came two days after Henderson said the 20 sales, deadlines for which had earlier been extended by verbal agreement, would not go through.
Critics have been calling for government action, saying Henderson's trumpeting of the sales - including a HK$439 million sale of a top-floor duplex - artificially inflated prices in both the luxury and mass markets.
The police and the Securities and Futures Commission declined to comment yesterday.
But a person familiar with the Securities and Futures Ordinance said the commission should have sufficient reasons to start an investigation on whether any company had breached the securities law.
The person said companies must be careful in making sure their financial statements were accurate. The SFC had grounds to check whether the developer made a hasty decision and had taken too high a risk in booking a HK$973 million profit from the sales in its financial statement last year, as investors may have relied on the statement announced in March to trade the shares.
But the person said it might be difficult to prove if the company or an individual had done anything wrong as the buyers might be only speculators who decided to pull out when they could not make a profit.
The developer suffered a loss of HK$734 million on the unsold flats, which will be written off in the next financial statement.
The transactions were questioned from the start. Most flats were bought by shell companies registered in the British Virgin Islands.
The developer also said that if the flats were sold in six months, it would waive its contractual right to demand the buyers who pulled out make up the difference if the flats sold for less than they would have paid. This could amount to HK$1 billion.
A spokeswoman for Henderson Land said it welcomed the government's follow-up. 'We are willing to provide information for the investigation in order to reveal the truth.'
She also said it sent a lawyer's letter to Next Magazine, which reported buyers were in a 'partnership relationship' with Henderson.
The amount (in HK dollars) that Henderson Land Development will have to write off from the 20 unsold flats in its next financial statement: $734m