As the rest of the world smarted from the global financial crisis, it seemed that boisterously capitalist Hong Kong had landed a blockbuster property deal.
In October, Henderson Land Development Co. signed agreements to sell 25 units at a luxury apartment building with an expansive view of the city's harbor — including a 6,158 square feet five-bedroom duplex with a whopping price tag of nearly $57 million. At the time, it was believed to be Asia's most expensive property by square foot at nearly $9,200.
Eight months later, Henderson, whose chairman Lee Shau-kee was ranked No. 22 on this year's Forbes billionaire list with a net worth of $18.5 billion, announced in mid-June that 20 of the 25 deals, including the record-breaking flat, fell through.
Documents obtained by Hong Kong legislators and released on Monday showed that the developer refunded $22.4 million of the $46 million in deposits it received from the 20 buyers — 20 shell companies that used the same law firm.
Now some are wondering if the October sales were simply a sham to prop up property prices. Police in the semiautonomous Chinese financial hub are investigating and legislators have summoned Henderson executives to a special hearing on Monday in a brewing controversy that shines the spotlight on the high-stakes game of Hong Kong real estate.
The abandoned deals have generated outrage in this crowded coastal city of 7 million, where less than a quarter of its mountainous land is developed, opposition lawmaker James To said. One of the most expensive places in the world to live, some 47 percent of Hong Kongers live in government-subsidized housing — so locals are naturally upset at the suggestion that the territory's already ultra-rich property tycoons are manipulating the market to make an even bigger profit.
To said the transactions are highly dubious, from Henderson's willingness to delay their closing dates to its apparent generosity to the buyers.
"There are so many suspicious aspects. There needs to be an investigation. This involves the integrity of the system," he said.
Hong Kong's Apple Daily said in an editorial on Tuesday that the mass back-outs are "extremely unusual" and questioned why Henderson didn't seek further damages from the buyers in addition to keeping part of the deposit.
"For a private enterprise that cares about every penny, for a listed company that's supposed to maximize shareholder profit, this is too weird, too inconceivable," the newspaper said.
The luxury property at 39 Conduit Road in the hilly Mid-Levels neighborhood on Hong Kong Island has been dogged by questions since its debut. Lawmakers accused Henderson of going overboard with its marketing tactics by relabeling the floors in the 46-story building with numbers that sound auspicious in Chinese. The top level was named the 88th floor — the number "8" rhymes with "prosperity."
Dubbed "Tian Hui" in Chinese — which translates into "meeting in the skies" — the apartment building is touted as "exclusive for the city's Who's Who" on its official Web site, which features a picture of Caucasian men in tuxedo and women in ball gowns sipping drinks in the complex's "Esquire Lounge." Residents can "savor a vintage Claret" or "spend some quiet time with great books, reflecting on the far-reaching insights of Warren Buffett or losing yourself in the timeless classics of William Shakespeare."
Henderson has denied wrongdoing. A Henderson spokeswoman said Wednesday the developer has no business dealings with the 20 buyers other than the flat sales and that it granted extensions on the closing dates at their request. The company kept 5 percent of the value of each property and refunded the rest of the deposits as dictated in government-sanctioned property contracts, she said.
The spokeswoman, who declined to give her name in line with company policy, said it makes more business sense to put the flats back on the market immediately instead of seeking damages in court. She said the relabeling of floors was approved by fire safety, housing and planning officials.
Hong Kong police spokesman T.K. Ng said Wednesday the department won't comment on their investigation.
The usually critical corporate governance activist David Webb said this is likely a case of real-estate speculation — not illegal behavior. Webb said a middleman likely snapped up the 20 properties but failed to find buyers for them.
"Unless someone can prove collusion or a connection between the buyers and the seller, I don't see any issue," he said.
Promotional website for 39 Conduit Road:
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