Hong Kong government doubles deposit for land tenders to HK$50 million after Goldin’s abandoned Kai Tak sale
- The new deposit amount of HK$50 million applies to land valued at HK$400 million or more
- Rule comes into effect immediately
The Lands Department said on Thursday it is doubling the deposit for government sites put up for tender to as much as HK$50 million (US$6.3 million) after a buyer walked away from a winning bid of HK$11.1 billion for a plot of prime land in June.
The rule is effective immediately and the deposit would apply to all land sales with an estimated value of HK$400 million or more. Deposits for sites valued between HK$100 million to less than HK$400 million will range from HK$10 million to HK$40 million.
The tender for the abandoned Kai Tak plot, which opens on August 9, will be the first that requires a deposit of HK$50 million as it is worth more than HK$400 million.
The successful tenderer will also be required to make a part payment amounting to 10 per cent of the winning bid minus the initial deposit within seven working days of being awarded the tender. The balance will have to paid within 28 days.
Should Hong Kong raise land tender deposits to avoid another Kai Tak fiasco?
Under the previous arrangement, the maximum initial deposit was HK$25 million and the winning bidder was only required to make a lump-sum payment within 28 days.
“The two new measures taken together will increase the cost of default by the successful tenderer, strengthening the deterrent effect and better protecting the government’s interest in the event of such a default,” the Lands Department said.
But Vincent Cheung, managing director of Vincorn Consulting and Appraisal, said the government should follow the MTR Corp and the Urban Renewal Authority by bringing in a guarantor so as to prevent the winning bidder from reneging on a sale.
“It will plug a loophole as most bidders use shell companies to bid for the sites,” he said. “It is useless for the government to sue a HK$1 company to cover the potential loss in case the site sells for a lower price in the future.”
On June 11, Goldin Financial Holdings reneged on its bid for a waterfront plot in Kai Tak, namely Area 4C Site 4, citing “social contradiction and economic instability”. It said in a stock exchange filing that the waterfront site was won by its wholly owned subsidiary, High Smart Investment, which has a total paid up share capital of HK$1, and that “no guarantee was given by the company nor any of its other group’s companies in relation to the tender”.
The HK$25 million forfeited to the government amounts to a mere 0.23 per cent of the HK$11.1 billion bid.
Cheung forecast the abandoned site would only fetch HK$8.6 billion in the resale, resulting in a possible loss of HK$2.5 billion for the government.
Stewart Leung Chi-kin, executive committee chairman of the Real Estate Developers Association of Hong Kong, said the new requirements were acceptable.
“It will not affect the bidding interest from developers. Most builders will proceed with the deal once they win a plot. The last cancellation was a rare case,” he said.
Cheung, however, said that the new rule could prove to be a deterrent for medium-sized developers, as their initial investment would be high.
But a Lands Department source disagreed, saying that “the government does not want to make entry ticket too big as it might disadvantage medium-size developers and squeeze bank liquidity”.
“Part payment of 10 per cent will also make it more difficult for the bidder to quit,” the source added.
Additional reporting by Olga Wong
