Daily Management Review

Assets From Distressed Chinese Developers Being Gobbled Up By Hong Kong Firms


Assets From Distressed Chinese Developers Being Gobbled Up By Hong Kong Firms
After years of development in Hong Kong, cash-strapped Chinese developers are scaling back their presence in one of the world's most expensive real estate markets, allowing financial institutions in the city to snap up some of their holdings at bargain rates.
China Evergrande Group and Kaisa Group Holdings Ltd, both in billions of dollars of debt, have sold some assets to Hong Kong developers in recent months to assist relieve liquidity difficulties at home.
There's more to come: Aoyuan Group, which last week extended the redemption deadline of onshore asset-backed securities, is attempting to raise funds by selling more Hong Kong properties, according to two persons familiar with the situation.
Aoyuan is proposing to sell a refurbished office building in Kwai Chung, in eastern Hong Kong, to local investors or family offices, according to sources who declined to be identified since the information is classified.
According to the sources, the transaction will be sold for less than what Aoyuan paid for it. The building was purchased by Aoyuan in 2018 for HK$950 million ($121.83 million), and property brokers believe that its current value is less than HK$800 million.
This comes after Aoyuan sold certain properties in a residential development in the Mid-Levels to a Hong Kong investor for a loss of HK$177 million in mid-November.
There were no comments on the issue available from Aoyuan.
The trend will aid Hong Kong real estate tycoons in consolidating their power over the Chinese-controlled region.
With the aim for investment possibilities outside of the mainland, the once deep pocketed Chinese developers had flocked to Hong Kong, outbidding their cross-border rivals for premium real estate.
But, as Beijing moves to cut debt in the sector, those developers are now experiencing an unprecedented financial pressure, prompting some to miss bond and wealth management product payments.
To satisfy short-term financial requirements, several builders have had to liquidate their assets.
"It's a reversal of the trend," said Reeves Yan, CBRE head of capital markets in Hong Kong. "Chinese developers with liquidity crunch are now selling, and it is expected that there will be more selling in the next few months (in Hong Kong)."
Kaisa, which skipped $88.4 million in coupon payments earlier this month, sold a residential land tract in Kai Tak, where Hong Kong's old airport formerly stood, to local counterparts Far East Consortium and New World Development for HK$7.9 billion on Wednesday, according to a stock market filing.
According to Reuters, it just sold another property in Tuen Mun, northern Hong Kong, to local businessman Francis Choi for HK$3.78 billion. After repaying the debts it took out to buy the land, Kaisa was able to collect roughly HK$1.3 billion through the sale.
Kaisa did not respond to a request for comment.
According to a Reuters report quoting sources, Evergrande, which is saddled with more than $300 billion in debt, had transferred unsold apartments worth HK$2 billion in a residential complex to its joint-venture partner VMS Group, a Hong Kong financial firm.
No comments from Evergrande were available on the issue.
Only one Chinese property business has been involved in a land acquisition for HK$7.3 billion this year, when only government land purchases are included, not private land sales between developers.
According to statistics provided by CBRE, this compares to a total of HK$39 billion spent last year and a record of HK$58 billion spent in 2017.
"The state-owned developers are still cash-rich, but the property market will be led more by Hong Kong investors going forward," said Tom Ko, Cushman & Wakefield's Hong Kong capital markets executive director.