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Doubts over Hong Kong’s $57m flat sale

By Justine Lau in Hong Kong
Published: December 10 2009 17:30 | Last updated: December 10 2009 22:55

Weeks after a Hong Kong developer announced it had sold a flat for HK$439m ($57m, €38m, £35m),
the eye-catching price tag is still being treated with scepticism.

Doubts were raised immediately over the HK$88,000 per square foot sale price and local newspapers
are still trying to establish the identity of the buyer.

The 4,671-sq ft five-bedroom duplex apartment sits on the second highest floor of 39 Conduit Road
with a bird’s eye view of Victoria Harbour. Even viewing the unfinished flat, sold by developer
Henderson Land, required a bank draft of 5 per cent of the asking price, or about HK$21.9m.

“[In Hong Kong], high-profile sales are better than advertisements,” says Nicole Wong, regional head of
property research at CLSA. “They are so visible and can generate a belief that the market is doing
great. Most people only buy flats two or three times in their lives. So when they see that rich people are
buying, they would think they should buy too.”

While the deal paints a rosy picture of the property market, it also magnifies the discrepancy between
the luxury residential market and the mass market in Hong Kong, where prices for high-end homes
have risen as much as 45 per cent this year, and those for cheaper flats have gone up by about 30 per
cent.

“There are two housing markets in Hong Kong, which are totally unconnected,” says Yip Ngai-ming, a
professor studying housing policy at the City University of Hong Kong. “The mass market is for local
buyers and there is a luxury market for investors, mainly from mainland China.”

While real estate has always been a pillar of Hong Kong’s

economy and home prices have a strong influence on the
city’s mood, the Henderson Land deal underlines the volatility
of the luxury market.

“Rich buyers from mainland China have so much money that

they don’t really care. They buy properties in Hong Kong for
many reasons – for immigration, for their children, for
entertainment,” says Ms Margaret Ng, of CBRE Research.

In Hong Kong, the government owns virtually all land. It

releases plots for auction only after a developer’s offer
triggers a reserve price and then only if the plot has been put
on a shortlist for offer.

The system has been criticised for creating a mismatch in

supply and demand. Between 2010 and 2012, only 11,000
flats are expected to come to market each year. In 2008,
18,000 new flats were bought, according to CLSA.
The luxurious 39 Conduit Road has a bird’s eye
view of Victoria Harbour
Since property companies pay steep prices for land, they are
often motivated to build high-end projects to recoup their investment.

In the case of 39 Conduit Road, Henderson built spacious luxury duplex flats on high floors, which can
be sold for twice the price of other apartments in the same building on a per square foot basis.

While some local people have expressed scepticism about whether the
transaction is real or not, a Henderson representative was emphatic: “It’s
100 per cent absolutely true. Buyers like these apartments as they are
similar to rare jewellery. The more expensive it is, the more buyers like
it.”

Hong Kong newspapers found that at least 24 apartments in the building

were bought by shell companies registered in the British Virgin Islands,
using the same law firm. Other stories reported that the buyer of the
HK$439m penthouse bought other flats in the building at a discount.

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FT.com print article 8/29/10 11:02 PM

While confirming that the buyer also purchased five other flats at 39
Conduit Road, Lee Shau-kee, chairman of Henderson, denied that flats
were sold at below-market prices.

“I don’t know what made people think that,” he said. “This is totally
untrue.”

But even the reported prices for certain transactions do not always tell
the whole story. People in the industry say it is not uncommon for buyers to secure rebates after
transactions are completed. In one case, a buyer reportedly received a HK$2m “decoration allowance”
after purchasing a flat for about HK$10m last year.

“I am always suspicious. I won’t believe any of these record-breaking deals unless the buyers can sell
their flats without loss in a short time,” says Prof Yip.

Property price towers over others in Asia

The price yielded by flat number 68A at 39 Conduit Road, Hong Kong island – HK$88,000 ($11,350,
€7,700, £6,970) per square foot of saleable area – not only set a new world record but is significantly
higher than the highest figure paid for an apartment in other Asian cities, write FT reporters.

According to Henderson Land, the project’s developer, the transaction price broke the previous record
set by One Hyde Park in London, where a flat was sold for £6,000 per sq ft last year.

In Sydney, Doug Moran, head of Moran Health Care, last year paid A$16.75m for a 12th-floor
apartment in Bennelong, a development overlooking the Opera House. That sale price equates to
A$67,500 per square metre, or about $5,800 per square foot.

In Tokyo, where the cost of living is considered the highest in the region, the most expensive
apartment, at Park Mansion Roppongi, was sold at about $5,000 per sq ft last year. Record prices are
much lower in Seoul ($2,280 per sq ft), Melbourne ($1,726), Beijing ($1,327), Taipei ($1,385) and
Bangkok ($945).

Henderson, meanwhile, is seeking to break its own record. The company aims to sell a penthouse in
the same Hong Kong building for HK$100,000 per sq ft. But given the controversies surrounding 68A,
that may not happen for a while.

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