Luxury Hong Kong tower The Corniche is not doing so well, and developers are feeling the pressure
A huge project started about six years ago, The Corniche is supposed to be this luxury apartment situation in Hong Kong.
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The backstory: We’ve talked about it before, but China’s property market is a big part of the country’s economy, with some estimates saying it makes up anywhere from 17-29% of China’s GDP. But, over the last few years, it’s seen a lot of struggles, with housing being majorly unaffordable for most people and many property developers struggling with mounds of debt they couldn’t pay off.
For example, Evergrande has been the popular conversation when it comes to struggling property developers, but there’ve been a bunch of other developers who have seen similar challenges. Enter, The Corniche.
More recently: A huge project started about six years ago, The Corniche is supposed to be this luxury apartment situation in Hong Kong. When its developers built it overlooking the South China Sea, it was expected to bring in an estimated HK$30 billion (US$3.8 billion). They spent HK$16.9 billion (US$204.3 million) just to buy the land, and the units range anywhere between 1,340 to 9,633 square feet. So these are not tiny apartments.
The tower’s Chinese developers, Logan Group and KWG Group Holdings, finished the project and eagerly waited to sell all 295 units for around HK$50,000 (about US$6,400) per square foot, but that’s when problems started to develop.
Since the COVID lockdown and regulations on borrowing started ramping up, it’s been a lot harder for developers to sell properties. This was no different for Logan and KWG. It’s been almost six years, and of the 295 units available in The Corniche, they’ve only sold three as of May 22, according to Centaline Property Agency. The luxury high-rise now sits between a sewage treatment facility and a driving school. Much like the Evergrande situation, things are starting to look dire for Logan and KWG.
The development: They borrowed a bunch of money to build The Corniche and have about US$10 billion in debt to restructure between them. So now, the tower could become an asset for banks to seize if they can’t get their debts under control.
It wouldn’t be the first time this year that a bank has seized property from a developer over bad debts. Cheung Kei Group had its HK$7 billion (US$892 million) dollar tower seized by creditors, and even the owner’s home worth HK$2.1 million (US$271 million) was snatched up.
Nobody can say for sure what will happen next with The Corniche, but some think the banks will likely be coming for it to settle some of that bad debt. The companies did chat with their lenders last week about those loans, but none of them have publicly commented yet about that.
Key comments:
“Investors dealing with these companies need to seize offshore assets or companies through legal process, and the longer you wait, the more you don’t know what they may be doing,” said Monica Hsiao, founder and chief investment officer of Triada Capital.
“It’s easier to get hold of developers’ assets in Hong Kong than on the mainland, said Ronald Thompson, managing director at advisory and restructuring firm Alvarez & Marsal.
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