Developers woo market as costs bite

Business | Samantha Wong and Bloomberg 13 Sep 2018

Developers are in a rush to launch residential projects despite a lukewarm response in the market while at the same time, China's HNA is surrendering its office space amid sky-high rents in Central.

Only around 20 potential buyers have visited the sales office of Henderson Land's (0012) project in One Artlane in Sai Ying Pun, in which the first batch of pre-sale comprises 50 apartments. The project has reportedly received more than 300 subscriptions.

Meanwhile, Chinachem said its Sol City project in Yuen Long will provide 720 flats, and pre-sales will be launched next month.

The pricing of the project is likely to be affected by an expected increase in interest rates by end of this month, according to Chinachem's director of sales Ng Shung-Mo.

Incentives are being laid on thick as firms rush to sell stock ahead of a vacancy tax that will penalize developers for holding onto empty apartments.

Various government cooling measures announced in June, along with rising interest rates, have prompted some market watchers to predict Hong Kong's 15-year run-up in home prices may be coming to an end.

Meanwhile, in the commercial property market, the debt-laden Chinese conglomerate HNA is surrendering eight floors of office space in Hong Kong's business district that it never occupied, according to people familiar with the matter.

Some of the floors in Three Exchange Square in Central are being marketed for new tenants, according to the people, who asked not be named because they're not authorized to speak publicly.

HNA has sold more than $17 billion of assets this year to whittle down one of China's largest debt piles. It's jettisoned everything from its stake in Hilton Worldwide Holdings to undeveloped land near Hong Kong's former airport.

HNA signed a nine-year lease that started in June and was due to run through May 2027, documents lodged with the Land Registry show. While the lease began some three months ago, HNA Group didn't move into the building, owned by Hongkong Land Holdings, or fit out the space, the people said.

A spokesperson for Hongkong Land said via email that the company doesn't comment on speculation regarding its tenants or individual leases.

The vacant floors will be taken up relatively quickly given the high demand for office space in Central, according to David Wood, director of office services at Colliers International.

"There are still a number of mainland firms looking to consolidate operations," Wood said. "A lot of tenants in Hongkong Land's portfolio looking for expansion space have struggled to find it because the vacancy rate is so tight."

A report in February last year said Hainan-based HNA was expected to be paying HK$140 per square foot for the 88,000-sq-ft space, or more than HK$12 million ($1.5 million) a month in rent. Not taking up the space may therefore save the cash-strapped company about HK$144 million a year.

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