The U.S. government has offloaded a luxury residential site in Hong Kong's most politically connected neighborhood at a cut-rate price.
The development at 37 Shouson Hill Road sold for HK$2.56 billion (US$326 million) to Hang Lung Properties HLPPY, a Hong Kong developer headed by the outspoken billionaire Ronnie Chan.
Chan is best-known in the United States for serving on the board of Enron when the energy company spectacularly blew up. Chan is also known for his work to foster closer U.S.-China relations, serving as the Hong Kong chairman of the Asia Society and on think tanks in both China and the United States.
The sale of the property was complicated by the fact that Chinese state-owned companies were discouraged from considering the purchase. The U.S. Consulate General also vetted potential suitors to ensure there was no political fallout from the sale.
Commercial brokers valued the property, which will be knocked down for redevelopment, at between HK$3.2 billion and HK$3.5 billion. But after a tender offer process that began in May, the U.S. consulate has accepted HK$2.56 billion as a knocked-down price.
That's about 24% off the midrange of the estimated price. It's also substantially less than the neighboring property at 39 Shouson Hill Road, which sold in July 2018 to the Chinese state-owned conglomerate China Resources CRBJY for HK$5.93 billion.
Hang Lung said it was "pleased" to have won the tender for the Shouson Hill site. "The price of this rare and premium land lot is reasonable, and the purchase is a vote of confidence in Hong Kong's future," the company said in an email to the media.
The property currently contains six blocks of apartments used to house staff from the U.S. Consulate General. There's a swimming pool between two of the blocks, a rarity in Hong Kong, and a total of 26 apartment units.
The U.S. government says the sale is merely part of a regular review of its assets overseas. It says the money will be used in part to enhance its other properties in Hong Kong, including the U.S. consulate offices. The U.S. consul lives in a huge house on the Peak, Hong Kong's most storied luxury neighborhood.
But the U.S. government announced the sale at a time that the Trump administration was in the process of revoking Hong Kong's status as an autonomous part of China and as Beijing announced plans to introduce its draconian treason law in Hong Kong. The Trump administration has since revoked Hong Kong's preferred trading status and says the city will now be treated on the same footing as mainland China. The U.S. government has also imposed sanctions against Hong Kong's top leadership for violating the rights of Hong Kongers and tearing up the "One Country, Two Systems" autonomy that China promised to ensure would remain in place in the city.
Shouson Hill is known as the home to Hong Kong's political movers and shakers. Many politicians and high-ranking bureaucrats live in the area, which is on Hong Kong island's peaceful "South Side," toward Repulse Bay beach and the Ocean Park theme park. The Peak may hog the headlines but the South Side is home to Hong Kong's richest man, Li Ka-shing, and many other tycoons.
Although Li's property arm CK Asset Holdings put in a bid on the U.S. consulate lot, many Hong Kong developers said they had not participated in the deal, perhaps attempting to distance themselves from the U.S. government. Mainland Chinese companies boycotted the sale altogether.
The rate of the current property equates to HK$54,138 (US$6,900) per square foot that can be built. China Resources paid HK$86,800 (US$11,065) per square foot for the site next door, meaning the U.S. site has cost 38% less.
Hang Lung, which hasn't bought any property in Hong Kong for years due to the high cost, says it will likely spend HK$4 billion to redevelop the site into luxury stand-alone homes. The project should be ready for sale by 2024.
Chan has pushed Hang Lung into mainland China, where it now gets 53% of its property-rental revenue. It mainly focuses on developing retail and commercial space rather than residential real estate. Its last Hong Kong project was completed in 2015, with 18 luxury townhouses in Happy Valley, on the other side of the Aberdeen Tunnel from Shouson Hill.
The U.S. government bought the 94,796-square-foot site at Shouson Hill in 1948 for an unknown price from the British colonial government. It built the six blocks currently there by 1983.
The State Department "regularly reviews the U.S. Government's overseas real estate holdings as part of its global reinvestment programme," the U.S. Consulate said in May when the sale was announced. The Shouson Hill sale and use of the proceeds to improve other buildings in Hong Kong "reinforces the U.S. Government's presence in Hong Kong by ensuring its facilities are able to perform to the highest long-term standards."