At first sight, Cheung Kong’s sale of individual hotel suites at its Apex Horizon project looks like yet another in Hong Kong’s long history of inexplicable property loopholes. Over the years, land sold cheaply for hotel development has mysteriously ended up with for-sale ‘serviced’ apartments on it. Buildings that were supposed to be x floors high mysteriously ended up 2x or 3x floors high. And so on and so on. Developers made billions in extra profit against the spirit of the outline zoning plan/land lease/plot ratio mumbo-jumbo after some never-identified bureaucrat used his discretionary powers to alter the letter. Meanwhile, the Independent Commission Against Corruption goes after some boy scouts or something.
It does appear, however, that this project is kosher – or at least the loophole is a general one, applicable to all hotels built under land leases finalized before a particular date. It is legal for a developer of such a hotel to sell individual units. The anti-speculation stamp duties would not apply, as this is commercial, not residential, property. The buyers would therefore be investors hoping to make returns from rentals. Presumably, they could let to themselves and thus use the property as a de-facto residential unit.
However, commentators warn, they could be busted simply for cooking in their new home, let alone changing the furniture. Indeed, the whole building could be confiscated (and wouldn’t that be a sight to warm the heart?). The government has issued a rather vague warning to would-be buyers. The latter, needless to say, are turning up in droves to put their money down as if these were HK$2 million parking spaces Cheung Kong is putting on sale. Which maybe they are, in a way.
For a change, it’s arguably not the Hong Kong taxpayer being cheated here. But can we say the same for the purchasers of these units? As anyone who has read Alice Poon knows, Hong Kong developers have honed their money-making skills to the extent that home-buyers go on paying them for life. They do this by owning the estate management companies and charging residents monthly fees for security, swimming pools, clubhouses and other facilities. Who knows how much extra profit, rising in line with inflation, this rakes in from each apartment sold over the decades?
Now think how much in management fees you would have to pay if you owned a unit in a hotel – a building purpose-built to be crammed full of little-used facilities and services, from business centres to guest refrigerators to laundries to little shampoo bottles. Could it be that Cheung Kong boss Li Ka-shing’s wily managers have identified an amazing golden goose: a development people can sleep in, built on cheap commercial-zoned land, with built-in income streams, and with Hong Kong and Mainland easy-money zombie-lemmings blind to any down-side (possibly additionally mesmerized by the magic Superman ‘Li’ factor) jostling to sign the contract and hand over the cash?
Since we don’t need to ask whether there are any limits to what we might politely call property developers’ ‘appetite’, let’s look on the bright side. Let’s ask whether, in fact, Li Ka-shing is the good guy here and deserves not a bronze, not a silver, not a gold Bauhinia Star – but a platinum-plated plutonium one for this genius money-spinning idea. Or, as the South China Morning Post more somberly puts it…
Now don’t get too excited. Hotels in Hong Kong can provide lucrative returns, and a sensible investor would be an idiot to sell one. But, having said that, times are strange. Lunatics are paying millions for parking spaces. It’s a bubble. You can go back into hotels later when the whole thing has crashed.
Many hotel owners in Hong Kong could use this loophole and emulate Cheung Kong’s Apex Horizon model (and remember many of them are the fellow tycoons who rather pathetically imitate Li’s other ideas, like dotcoms and REITs). By selling hotel rooms as quasi-residential units, they would give Hong Kong a new supply of homes (chuck a hot plate in the corner – the government will never find out).
But wait! There’s more! This would mean less room for legitimate hotel guests. This is a genuine counter-tourism measure if ever there were one.
The experts say that the government can’t plug this loophole because of sanctity of contracts blah blah blah. It would be the ultimate win-win. And what a beautiful prospect: the parasitical property-tourism monster eating itself.
Which brings us to… Fun Juxtaposition of the Day Award, which goes to the Standard for putting this week’s story about a Mainland tourist letting her kid pee in a Hong Kong restaurant (well, a Tsui Wah) right atop an ad for the pretentious L’Atelier de Joel Robuchon high-class eatery. That should subliminally induce a few cancelled reservations.