China Evergrande fails to offload leftover units at The Emerald Bay Phase 2 project in Hong Kong

By Lam Ka-sing kasing.lam@scmp.com

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October 21, 2020 12:19 PM SGT

China Evergrande, the world's most indebted developer, failed to offload leftover units at its The Emerald Bay Phase 2 project in Hong Kong on Friday.

It had sold just seven out of 262 units as of 7pm local time, which agents attributed to an oversupply of new flats in the district. Several projects, such as New World Development and MTR Corporation's The Pavilia Farm in Tai Wai, have diverted buyers' attention.

"The purchasing power [for such flats] has dried up," Patrick Yu, district sales manager at Centaline Property Agency, said, adding that such small flats were new when the project was first launched in October last year and its first two launches were fully sold out. Projects such as Seacoast Royale and Oma By The Sea, which have been launched since, have soaked up first-time homebuyer demand, Yu said.

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Friday's dismal sales follow a share sale by Evergrande, which is trying to raise funds to reduce its gearing amid suspected cash-flow issues, that failed to deliver the goods. The company reportedly left out close associates of chairman Hui Ka-yan as it sought to raise as much as US$1.09 billion and wanted to prove it could access long-term funding without relying on other Chinese property tycoons.

Even though Evergrande was able to entice several big-name buyers, such as Norway's sovereign wealth fund, the share sale - priced at a steep discount on the previous close - ended up raising about half the targeted amount.

Evergrande gets approval to spin off property management business, raise fresh capital

And while some buyers might be worried about Evergrande's financial issue, Centaline's Yu said its financial position in mainland China would not affect its Hong Kong entity. The flats, measuring 223 sq ft to 313 sq ft, cost between HK$3.7 million (US$490,000) and HK$5.5 million after discounts amounting to 14 per cent. The project has sold about 1,080 units out of a total of 1,982 flats, and Yu said he expected the project to be almost sold out by the time it is completed in August next year.

Elsewhere, The Pavilia Farm received about 22,700 registrations of intent for the 391 flats that go on sale this weekend. This is the highest number of registrations since Villa Esplanada in Tsing Yi received 30,400 registrations and East Point City received 27,000 registrations during a market peak in 1997.

This interest will spread to other projects as well, as most buyers were unlikely to be allotted flats in the initial sale, Yu said.

Meanwhile, Marie Claire Lim Moore, chief executive in Hong Kong of information and insights company TransUnion, said potential buyers must "carefully assess their ability to repay ... their mortgage payments".

More than seven out of 10 consumers said their family incomes had been negatively impacted, TransUnion said in a report released on Thursday, which showed Hong Kong consumers were experiencing mounting financial pressures because of the coronavirus pandemic, according to an online survey of 1,100 adults in Hong Kong conducted by TransUnion between August 30 and September 3.

Separate data showed that the total number of middle-aged consumers defaulting on their mortgage payments increased by 41 per cent from 302 in the second quarter of the previous year to 426 this year. Millennials showed a 72 per cent increase over the same period, from 107 to 184 cases.

Separately, the tender for a commercial site in Tung Chung attracted only three bids, from Sun Hung Kai Properties, CK Asset Holdings and a joint venture of Sino Land and Kerry Properties.

"Developers are not very keen on such commercial parcels [at the moment], because of the large investment and long capital cycle involved," said Thomas Lam, executive director of Knight Frank. He slashed the plot's valuation by 25 per cent to HK$3.8 billion from HK$4.4 billion in January.

"There is a risk of it being withdrawn from sale, as the district needs seven to 10 years" to mature, because of insufficient infrastructure and the long distance from the city centre, he added.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.

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