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Hong Kong property

China’s troubled HNA Group flips Kai Tak plots to Henderson Land for a profit of HK$1.7 billion

HNA Group, which paid HK$14.3 billion for the two plots at the site of Hong Kong’s former airport in Kai Tak, has sold it to Henderson Land for HK$16 billion 

PUBLISHED : Tuesday, 13 February, 2018, 8:46am
UPDATED : Wednesday, 14 February, 2018, 9:56am

HNA Group, the financially troubled Chinese conglomerate, has made a quick HK$1.7 billion (US$217 million) by selling two of its four Hong Kong residential plots bought 15 months ago for a record sum to one of the city’s biggest developers.

The two plots at the site of Hong Kong’s former airport in Kai Tak have a total gross floor area of 1.06 million square feet and were sold to Henderson Land Development for HK$16 billion, or HK$15,000 per square foot, a record in terms of per square foot for the area.

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HNA’s Hong Kong-listed property unit, Hong Kong International Construction Investment Management Group (HKICIM), said the deal was signed on Monday and will be completed on Wednesday, according to a filing to the Hong Kong stock exchange. 

In November 2016, Lands Department awarded the site, New Kowloon Inland Lot No 6565, to HNA’s wholly owned subsidiary Total Thrive for HK$8.84 billion. A month later, the group’s Sky Hero Development secured the adjacent site, New Kowloon Inland Lot No 6562, for HK$5.41 billion.

Henderson Land, chaired by property tycoon Lee Shau-kee, paid HK$15.959 billion for the entire shares of Total Thrive and Sky Hero, according to HKICIM’s statement.

HKICIM also owns 17 per cent of two of four sites acquired by HNA Group since November 2016. The remaining 83 per cent is owned by HNA Group. The company paid HK$27.2 billion in total for the four sites in Kai Tak area.

Liu Junchun, vice-chairman of the conglomerate’s private unit HNA Holding International Investment Group, said the sale has provided attractive returns.

“It is positive for the group to focus on the development of the remaining two sites,” he said.

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Shares of HKICIM jumped 7.1 per cent to close at HK$2.26 after the announcement on Tuesday morning, while Henderson Land rose 1.1 to end at HK$49.6.

HNA, with 290,000 employees around the world, has 6,000 people in Hong Kong on its payroll. The company had plans to build housing at Kai Tak for its staff, and sell them at subsidised prices to help them afford property in the world’s priciest market, founder Chen Feng said in an interview with the South China Morning Post in June.

Henderson Land’s latest purchase comes after it sold a residential site in Tuen Mun it won in a 2015 government tender to China Evergrande Group for about HK$6.5 billion last month. Henderson Land reaped a profit of more than HK$2.8 billion from the resale.

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HNA’s deal is the fourth developer flipping government land for profit in the past eight months. State-backed China City Construction (International) and Chun Wo Development resold a residential site in Ma On Shan it won in a 2014 government tender to Wang On Properties for HK$2.7 billion last August. China City and Chun Wo earned HK$562 million after having paid HK$2.138 billion, or HK$5,517 per sq ft for the site.

A month later, Wang On sold a 60 per cent stake in the Ma On Shan site to the Guangzhou-based developer Country Garden Holdings for HK$2.44 billion. Wang On pocketed a profit of HK$800 million in just three months but the land price jumped 90 per cent to HK$10,500 per sq ft.

Lee Wing-tat, chairman of policy think tank Land Watch, urged the Lands Department to plug the loophole of allowing developers reselling government land through transfer of company shares.

“If the government fails to act promptly, more developers will take advantage of the market boom by reselling government land for profit, which will indirectly push up home prices,” he said.

Meanwhile, analysts say home prices at the site of Hong Kong’s former airport in Kai Tak are expected to jump by 50 per cent within the next three years.

Victor Lai Kin-fai, chief executive of consultancy Centaline Professionals, expects the average selling price for the flats close to the city’s next central business district, to reach HK$30,000 per sq ft from HK$20,000 per sq ft currently when they are due to be launched for pre-sale in two to three years’ time.

Henderson Land paying a 12 per cent premium for the two sites reflects its optimism on the market outlook.

“Hong Kong home prices rose about 14 per cent in 2017 alone,” Lai said.

Raymond Cheng, director of property equity research at CIMB Securities, said home prices were unlikely to fall as land values keep on rising.

“Prices for the upcoming sale of government land in Kai Tak by tender will go up further,” he said.

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