When Greentown China founder Song Weiping sold his shares to Sunac (01918.HK) last month, the deal resurrected questions about the former’s relationship with Hong Kong conglomerate Wharf Holdings (00004.HK), his second largest shareholder.
Did Greentown do it for the money and to embarrass Wharf?
There’s no indication of the latter, but there has been speculation Song and certain Wharf executives did not see eye to eye on governance issues.
Wharf did not sell its stake to Sunac which reportedly wanted it, leading its outspoken founder, Sun Hongbin, to accuse the Hong Kong flagship of benefiting from the deal without lifting a finger.
Wharf’s role in all this concerns a HK$5.1 billion lifeline to Greentown in 2012 which gave it a 35 percent stake in the mainland developer.
It was one way of tapping what then was a red-hot Chinese property market.
Years earlier, Wharf had been among several Hong Kong companies, notably Sun Hung Kai Properties (00016.HK) and Cheung Kong Holdings (00001.HK), that expanded into the mainland, but the initial experience wasn’t always worth writing home about.
The reasons ranged from regulations to taxes and auctions.
In 2007, Sun Hung Kai built a slew of residential-cum-commercial developments in Chengdu, Guangzhou, Shenzhen and Shanghai, only to run into stringent purchase limits. Then the 2008 financial tsunami washed away any remaining opportunities.
A Wharf executive overseeing its mainland operations was astonished to learn about the breakneck project development pace called “5-9-12”, according to Sina Finance.
The numbers simply mean construction must start no later than five months after a plot is bought, pre-sale must begin within nine months and the project must generate positive cash flow within 12 months.
By comparison, Hong Kong developers take time to lunch new projects and sometimes leave vacant plots for a number of years while their value grows.
Such a development model will not work in the mainland where a longer timeline means additional land value increment tax which is not levied in Hong Kong.
And holding plots can sometimes be risky. In 2010, a Cheung Kong subsidiary was severely criticised by state broadcaster CCTV for leaving a prime plot in downtown Beijing idle for three years.
Ad hoc and less transparent land auctions are an added challenge. In Hong Kong, the Lands Department gazettes annual land sales with detailed planning of supporting municipal services and facilities, giving developers enough time to plan accordingly. But this is not the case in the mainland.
Although Hong Kong investors in the mainland have their own criteria to assess a city’s potential based on key economic statistics such as gross domestic product and per-capita income, they may not have access to land auction plans by the concerned local government, according to analysts.
And with a growing supply glut and tepid demand in recent months, the mainland housing market is looking less and less appealing to Hong Kong developers.
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