After years of expansion in Hong Kong, cash-strapped Chinese developers are reducing their presence in one of the world's most expensive property markets, allowing firms in the financial hub to scoop up some of their assets at distressed prices.
In recent months, developers including China Evergrande Group and Kaisa Group Holdings, struggling with billions of dollars in debt, have sold some assets to Hong Kong developers to help ease liquidity stress back home.
Two sources with knowledge of the matter said that the Aoyuan Group, which extended the redemption date of onshore asset-backed securities this week, is trying to offload more Hong Kong properties to raise capital.
Aoyuan is planning to sell a redeveloped office building in Kwai Chung in eastern Hong Kong, and the bidders will likely be local investors or family offices, the sources said.
Sources said the deal is expected to be sold for less than what Aoyuan paid for it. Aoyuan bought the building for HK $950 million US $121.83 million in 2018, and property agents estimate its current valuation at less than HK $800 million.
Aoyuan sold some assets in a residential development in the Mid-Levels to a Hong Kong investor at a loss of HK $177 million in mid-November.
The trend will help the Hong Kong property tycoons to boost their dominance in the Chinese-controlled territory.
Chinese developers had started moving aggressively into Hong Kong, outbidding their cross-border rivals for prime sites in the city as they searched for investment opportunities outside the mainland.
The developers are facing an unprecedented cash crunch due to regulatory curbs as Beijing tries to reduce leverage in the sector, causing them to miss bond and wealth management product payments.
Some builders have been reliant on selling their assets to meet their near-term repayment obligations.
It is a reversal of the trend, said Reeves Yan, CBRE head of capital markets in Hong Kong. The Chinese developers with liquidity crunch are expected to sell in the next few months in Hong Kong Kaisa, which missed coupon payments of US $88.4 million due to the old airport in Kai Tak, to local peers Far East Consortium and New World Development on Wednesday November 24 for a consideration of HK $7.9 billion, according to a stock exchange filing.
A parcel sold in Tuen Mun in northern Hong Kong to local investor Francis Choi for HK $3.78 billion, according to Reuters this week. The sale helped Kaisa recover around HK$1.3 billion in cash after repaying loans it borrowed for the land.
Evergrande, which is struggling with more than US $300 billion in liabilities, has transferred unsold units worth HK $2 billion in a residential development to its joint-venture partner VMS Group, a Hong Kong financial company, a separate source told Reuters.
So far this year, a Chinese property firm has invested in a land purchase worth HK $7.3 billion, which was jointly invested with four Hong Kong peers, taking into account only government land sales and not private ones between developers.
The data compiled by CBRE shows that the total of HK $39 billion spent last year and HK $58 billion in 2017 were compared to a year ago when it was only HK $39 billion spent.
Some financially stronger Chinese developers are still active in the market, according to sector observers.
In the city's last residential land auction in October, state-owned China Overseas Land was the only Chinese company among the sixteen bidders, though it did not win.
The state-owned developers are still cash-rich but the property market will be led by Hong Kong investors going forward, said Tom Ko, Cushman Wakefield's Hong Kong capital markets executive director.