Land tender: Hong Kong government must introduce guarantors, higher deposits to prevent another Kai Tak fiasco

By Sandy Li sandy.li@scmp.com / https://www.scmp.com/property/hong-kong-china/article/3015073/land-tender-hong-kong-government-must-introduce-guarantors?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | June 21, 2019 11:57 AM SGT
The aborted sale of a HK$11.1 billion (US$1.4 billion) plot of prime land has exposed a serious flaw in the tender process that may cause the Hong Kong government to suffer a huge loss if it is unable to sell the site for the same price in a depressed market, according to market observers.
Property experts suggest the government should increase the deposit amount steeply from the current HK$25 million to prevent a repeat of such an incident in the future and introduce a guarantor to complete the sale in case the tenderer backs out of the deal.
On June 11, Goldin Financial Holdings walked away from its bid for a waterfront plot in Kai Tak, citing "social contradiction and economic instability". It said in a stock exchange filing that the waterfront site was won by its wholly owned subsidiary, High Smart Investment, which has a total paid up share capital of HK$1, and that "no guarantee was given by the company nor any of its other group's companies in relation to the tender".
The HK$25 million forfeited to the government amounts to a mere 0.23 per cent of the HK$11.1 billion bid.
Stewart Leung Chi-kin, executive committee chairman of the Real Estate Developers Association of Hong Kong, said that the government was unlikely to recover the price difference from the defaulting company if the plot fetches less in the second sale.
Lilian Chiang, senior partner at law firm Deacons, said that the government can theoretically sue the buyer for loss and damages.
"However, it is of no practical benefit for the government to sue the shelf company as a shelf company usually has no asset other than its issued share capital," Chiang said, adding that the government will only be wasting legal fees and resources.
Leung said that it has become a common practice for developers to bid for government sites through shell companies and not having a guarantor...