Hong Kong developer loses record US$331.5 million on resale of residential land at Kai Tak as coronavirus darkens market outlook

By Sandy Li and Lam Ka-sing / SCMP | May 12, 2020 12:06 PM SGT
Goldin Financial is selling Kai Tak 4B Site 4, pictured, for HK$7.04 billion, having paid HK$8.91 billion for it in November, 2018. Photo: Roy Issa
A Hong Kong developer has suffered the biggest loss on a land sale in the city's history, offloading a residential plot at Kai Tak to raise cash to help it weather a market slump caused by the coronavirus pandemic.
Goldin Financial Holdings, controlled by billionaire Pan Sutong, has agreed to sell the plot at the site of the former international airport for an estimated loss of HK$2.57 billion (US$331.56 million). It cited the uncertain market outlook as the city's economy suffers a massive blow from the Covid-19 outbreak.
The company's pullback represents a damning verdict on the outlook for the market, with valuations pummeled by months of anti-government protests, before the outbreak of coronavirus this year darkened the gloom. The former airport strip has now been associated with several deals that burned developers seeking a slice of action the world's most expensive real estate market.
A loss on this scale from reselling government land was unprecedented, said Alex Leung, senior director at CHFT Advisory And Appraisal.
"Very few land parcels change hands," he said. "The market has reversed, and Kai Tak really has a higher risk as the supply there is relatively high. Land value there will drop more than land in urban areas such as Kwun Tong and Sham Shui Po."
Goldin is selling the plot, called Kai Tak 4B Site 4, for HK$7.04 billion, having paid HK$8.91 billion, or HK$15,497 per square foot, for it in November, 2018. When its initial investment and finance costs are taken into account, the loss amounted to about HK$2.57 billion, according to a company filing to the Hong Kong stock exchange on Monday.
The resale price translates to HK$12,250 per square foot, bringing it back to a level last seen at Kai Tak in March, 2017.
"Considering the preliminary stage of development of the property and the significant capital required for the project, the directors adopted a prudent approach to retain more cash for the group's existing business, against the uncertain outlook in the property market and the overall economic downturn in Hong Kong," said executive director Shirley Hui Wai-man in the company statement.
"The proceeds from the disposal would be primarily used to reduce the group's borrowings, thereby enhancing its financial flexibility as a whole."
Hong Kong's economy shrank 8.9 per cent last quarter from a year earlier, the worst on record. Home prices in the world's least affordable housing market have retreated by 5.4 per cent on average from the peak in May last year, with some consultants predicting as much as a 20 per cent slide.
"The value of commercial land now is different from before. The economy now is very different, with the pandemic, the intensified US-China trade war, the social [unrest] " a combination of several negative factors," said Charles Chan, managing director of valuations and professional services for Greater China at Savills.
Goldin announced a loss of HK$482 million for the six months to December 2019, due to lower revaluation gains on investment properties and higher finance costs. That compared to a profit of HK$1.14 billion a year ago.
The buyer of the Kai Tak plot is an investment holding firm, Top Family Group, according to the announcement.
Goldin's shares opened 3.52 per cent higher on Monday at HK$1.47 in Hong Kong after the firm announced the loss-making deal, before slipping back to close 2.1 per cent lower, at HK$1.39.
The sale comes 11 months after Goldin rescinded its HK$11.1 billion (US$1.42 billion) winning bid for 4C Site 4 at Kai Tak, forfeiting a HK$25 million deposit on the site.
The company abandoned the site because of "social contradiction and economic instability", according to an announcement in June when lawmakers were preparing to vote on the city's contentious bill allowing extradition of criminal suspects to the mainland.
More than a million Hongkongers, according to organisers, then took to the streets to protest against the bill, a rally that kick-started months of civil unrest that dealt the city a massive economic blow.
Goldin's chairman, Pan, is ranked No. 22 on the Forbes Hong Kong Rich List this year with a net worth of US$4.2 billion.
HNA is another developer to incur losses from reselling plots at Kai Tak to raise much-needed cash.
Last February, Hong Kong International Construction Investment Management Group, the listed unit of the Hainan-based HNA Group, sold Area 1L Site 2 to Wheelock Properties for HK$6.89 billion, representing a loss of HK$550 million, reflecting the slowdown of the residential property market in Hong Kong, according to a company filing.
HNA bought the plot in March 2017 for HK$7.44 billion, or HK$13,500 per square foot on the basis of gross floor area of 551,134 square.
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