Sun Hung Kai wrong-footed with the Arch apartments project in Shanghai
Sun Hung Kai Properties, Hong Kong’s largest developer by market capitalisation, has been caught flat-footed by a controversial policy in Shanghai barring the sale of apartments built on land designated for office or commercial use.
The developer has been forced to stop the sale of the remaining converted apartments at its luxury serviced apartment project, Arch Residence, on the Huangpu River in Pudong.
More than 100 buyers who bought the converted apartments last year for prices ranging from 9 million yuan (US$1.3 million) to 18 million yuan now face potential huge losses, according to sources.
“The value of this kind of apartment will certainly drop significantly as most buyers are unwilling to pour money in these properties. People don’t know what the government will do next with these apartments,” said Clement Luk, chief executive for east China at Centaline Property.
The 23-storey block, comprising more than 170 apartments, was built on a site designated for commercial use. The block of serviced apartments is part of the luxury development Shanghai Arch, one of the most expensive housing projects in Pudong. Flats developed on residential sites in the project will not be affected by the new policy.
SHKP said the construction and marketing of the Arch Residence has complied with Chinese government rules.
“We are now awaiting government instructions and have nothing to add on this issue,” a SHKP spokesman said, without saying if affected buyers would receive compensation or a refund.
A mainland government website showed that processing of sales at Arch Residence has temporarily been suspended.
The developer’s website said the Arch Residence units ranged from about 700 square feet (about 65 square metres) to 1,360 square feet (about 127 square metres), with one or two bedrooms.
The project, due to be completed by the end 2017, was first launched in June 2016.
On Saturday, hundreds of demonstrators marched through a shopping district in Shanghai to protest against changes to the city’s housing regulations.
“It won’t be a surprise to see buyers of these converted apartments take further action if the government maintains its tough stand on the issue,” said Luk.
The converted-commercial housing market – considered a regulatory grey zone until now – has existed in mainland China for more than a decade.
But on May 18 Shanghai housing authorities issued a guideline that called for an end to approvals for any new apartments built on land designated for office and shop use.
The ruling went even further by requesting developers convert existing projects back to office use. Converted nits already being used as homes also fall within the scope of the rectification.
Some estimates suggest about 17 million square metres of existing projects will be affected, or roughly 170,000 owners.
The crackdown on converted apartments is part of the move to contain the red-hot property market which has seen home prices in Shanghai jump 45 per cent in the past year. Property developers previously exploited the grey area by acquiring land at cheaper prices than residential-zoned land.