Speculators cashed in on units at the Apex Horizon Hotel last night as its developer, Cheung Kong Holdings (0001), got the government's blessing for the sale.
Secretary for Development Paul Chan Mo-po said - after reviewing the government lease and other conditions - that he believes Cheung Kong did not violate any regulation by selling individual rooms at the hotel.
But he warned buyers not to convert their units for residential use.
"Using the units as anything but hotel rooms will be a problem," the development minister added.
He said the government ban imposed from 2003, which bars hotels from being sold in parts, does not cover Apex hotel.
The department is reviewing how many other such hotels there are.
Cheung Kong said 310 out of the 360 rooms have been sold, including 50 units taken by staff.
Agents said the internally sold units were immediately listed on the secondary market, with mark-ups ranging from HK$200,000 to HK$400,000.
As of early last night, there were at least three confirmor resales.
One unit on the 36th floor gained more than HK$400,000 in value to almost HK$4 million, one day after it was on the market.
The developer said it would release the remaining units last night.
DBS Vickers expects Cheung Kong to make HK$1.3 billion if it sold out all the rooms. But property sector professionals continued to voice their warnings over the project.
Stanley Wong Yuen-fai, vice chairman of the Town Planning Board, suggested Cheung Kong had used "financial maneuvers" in order to conduct the sales.
Buyers were also cautioned of the limited secondary market financing.
China Construction Bank Asia chief executive Miranda Kwok Pui-fong said there is a gray area in the sale, and banks may have difficulty in conducting mortgage assessments.
Vincent Ho Kui-yip, vice president of the Hong Kong Institute of Surveyors, said he is "very worried" that it will be difficult for the hotel to fullfil its purpose.
"Even if one [room] owner violated the usage restriction, it would be risking the hotel's license."
Cheung Kong executive director Justin Chiu Kwok-hung, however, insisted buyers will possess the title of the property. The firm spent a year studying relevant laws before launching the project, he said.
The government said the Lands Department will take appropriate action should there be any violation of the lease, which includes seizing the property.
Surveyor David Chan Wah-wai said the owner may have very little to say over how the hotel manager charges for its services.
"For example, every piece of furniture is required to be sprayed with fire- retardant, and ordinary investors can hardly work that out on their own."
He added that the management fee, which Cheung Kong sets at HK$2.90 per sq ft, looks low because the three-year- old facility is still under warranty, but when it expires it may rise considerably.
Other landlords such as Hysan Development (0014) and Link Reit (0823) said they have no plans to sell their investment properties in parts.