Chinese Govt Derails Hang Lung’s Purchase of US State Dept Site in Hong Kong

Just a few weeks after cancelling 2020’s biggest IPO, China’s central government has seized another opportunity to assert its authority in the business realm by blocking an agreement for the sale of a US consular property in Hong Kong.

In a joint announcement to the Hong Kong stock exchange today, Hang Lung Group and its real estate unit Hang Lung Properties revealed that the city’s Land Registry had sent notice on 24 December that it declined to process the HK$2.6 billion ($331 million) sale of the residential property on Shouson Hill, due to objections from China’s central government.

“The Central People’s Government of China (“CPG”) has advised the Government of Hong Kong SAR that if the US Consulate General in Hong Kong SAR intends to rent, purchase, sell, or otherwise acquire or dispose of any real estate property in Hong Kong SAR, the Government of the US must make a written application to the CPG via the Office of the Commissioner of the Ministry of Foreign Affairs of China in Hong Kong SAR at least 60 days prior to any intended transaction, and shall not proceed with the intended transaction without the written consent of the CPG,” the Land Registry informed Hang Lung, according to the statement.

Chinese foreign ministry spokesman Wang Wenbin added more detail today, stating that the Chinese government was requesting the application, “in light of U.S. regulations on the management of registered properties of foreign missions in the United States and based on the principle of reciprocity,” according to a report by Reuters.

Picking Quarrels and Provoking Trouble

In its statement, Hang Lung referred to the Land Registry’s notice as “exceptional,” and said that the US government disagreed with the assertions made by their mainland counterparts. The developer said that it is working with the US to explore the feasibility of extending the closing period for the transaction, which was due to be fulfilled by 30 December.

However, the foreign ministry’s Wang added in comments to the press today that, “Only when they get the approval in writing can they proceed.”

The Chinese government’s objections to the sale of the 95,000 square foot (8,800 square metre) site are based on the US Consulate General in Hong Kong not being a commercial entity and the plot, which the US had purchased from Hong Kong’s colonial government in 1948 for use as staff housing, was declared not to be an ordinary real estate property, according to Hang Lung.

Based on these conditions, Chinese authorities are asserting that the “sale of the Property involves foreign affairs between The People’s Republic of China (“China”) and the US and should not be regarded as an ordinary commercial activity,” Hang Lung said.

Unwanted Luxury Site

The US consulate began marketing the site in one of Hong Kong’s most expensive residential districts in June of this year, with the tender having been concluded three months later at a price around 18 percent less than the low end of price expectations when the tender kicked off.

The tender for the plot attracted only two bids, including Hang Lung’s winning offer, with a poll by the South China Morning Post conducted in August indicating that many of the city’s largest developers had steered clear of what was regarded as a controversial sale, due to frictions between China and the US.

Through legal counsel, the US is contesting China’s statement that written approval is required for the sale, and has indicated that it has fulfilled all obligations and requirements related to the sale, according to Hang Lung.

The US is also asserting that diplomatic relations are not relevant to property titles, and that the Land Registry, which normally functions as a record keeper, has no right to deny registration of the sale.

Hang Lung said that it is seeking legal advice related to the transaction, and will keep the market informed of any developments.