Cheung Kong Holdings Ltd., the developer controlled by Asia’s richest man, is canceling the sale of HK$1.4 billion ($180 million) of hotel rooms after Hong Kong’s securities regulator began a probe into the transactions.
Cheung Kong, controlled by billionaire Li Ka-Shing, will return all deposits and part payments plus interest to all the buyers of the individual rooms at the Apex Horizon project in the city’s west, after being notified by the Securities and Futures Commission that the sales constitute a unauthorized “collective investment scheme,” the developer said in a statement to Hong Kong’s stock exchange yesterday.
The sale of the 360 hotel rooms in February drew the government’s ire as it was seen as a means of skirting an increase in taxes on apartments that was aimed at cooling prices. Within days of the sale, the government extended the taxes to include hotels and other commercial property, and sent inspectors to check that Apex Horizon units weren’t being used as residences.
“The government is really sending out a message that there’s no room for fooling around,” Credit Suisse Group AG analysts Cusson Leung and Joyce Kwock wrote in a note to clients today. “The time for making super normal returns in property will be more difficult going forward.”
New World Development Co. and Great Eagle Holdings Ltd. have this month announced plans to spin off hotel assets in the city that may raise as much as a combined HK$5.6 billion.
Cheung Kong’s shares have declined 2.9 percent this year, compared with a 1.3 percent gain in the Hang Seng Property Index. The stock fell 0.7 percent to HK$115.60 at the close of trading in Hong Kong.
“We do not agree” with the SFC, Cheung Kong said in a separate e-mailed statement. The decision was made “as the difference in legal opinion may lead to legal uncertainty in respect of the sale and purchase of the hotel room units, which may affect the buyers’ ownership, mortgage arrangement or subsequent sale of the hotel room units,” the company said.
Hong Kong Development Secretary Paul Chan said in February the government sent inspectors to make sure the rooms weren’t used as residential apartments.
Hong Kong’s securities law requires the regulator’s authorization before a collective investment scheme can be marketed to the public, according to a statement on the SFC’s website yesterday.
Collective investment schemes involve arrangements of property and that participants do not have day-to-day control over the management of the property, according to the statement. Such property is managed by the operator and the arrangements is for the participants to receive profits, the SFC said.
The SFC intended to start legal proceedings seeking orders to unwind the sale, according to the statement. The agreement with Cheung Kong avoids court action at this stage, it said.
Li, 84, said in March it backed measures by the Hong Kong government to curb an “unhealthy surge” in property prices. The city is the world’s most-expensive place to buy an apartment and to rent retail space, and also has the second-highest office-occupancy costs, according to brokers including Savills Plc and Cushman & Wakefield Inc.
Cheung Kong in March said 2012 profit excluding contributions from unit Hutchison Whampoa Ltd. increased to HK$19.1 billion from HK$18.1 billion a year earlier.
Chief Executive Leung Chun-ying, who took over in July last year, has imposed extra taxes and pledged to increase land supply to curb real estate prices amid concerns housing is becoming unaffordable to the general public.
All 360 rooms at Apex Horizon, ranging from 656 square feet (61 square meters) to 909 square feet, were sold on Feb. 20 and Feb. 21, Cheung Kong said at the time. Buyers of those rooms were exempted from curbs introduced by the government, including a 15 percent extra tax on foreign buyers, as they only applied to residential properties.
Leung’s latest measures came on Feb. 22, when he doubled the stamp duty on all properties above HK$2 million, and raised minimum mortgage down-payment requirements on all non-residential properties. It was the first time it extended curbs to non-residential properties.
“The hotel-room sale was an indication the market was gaining momentum again,” said Simon Lo, Hong Kong-based head of research at property brokers Colliers International. “It gave the government another reason to introduce more curbs.”