Pearl Horizon case sending negative signals

The government’s decision to take back the site for the Pearl Horizon residential project amid legal disputes over development delays has struck an unexpectedly negative chord with property developers here, with local contractors’ trade chamber expressing misgivings about investors’ confidence and housing presales outlook.
The developer of the Pearl Horizon project, Polytex Corporation Ltd., published a front page statement in the city’s Chinese language newspapers on Friday slamming the government’s decision to declare the land concession for the project site invalid on December 25. Despite foundation works still ongoing on the Pearl Horizon site, the government recently said that the concession term has to end and is not renewable as the land use [will] fail to be completed by the concession expiry date.
Pearl Horizon, occupying over 68,000 square metres on lote-P of Areia Preta on the Macau Peninsula, is designed to house 18 towers with 5,000-plus residential units. The site, which had its land use rezoned from industrial to mixed commercial and residential use in 2006, was first granted to the developer in 1990 under a temporary land concession agreement with a validity of 25 years.
“Following this [Pearl Horizon] case, we saw that many banks here have become much more cautious or even unwilling to finance developers in bidding for land,” the president of the Macao Association of Building Contractors and Developers, Paul Tse See Fan, told Business Daily.
“Of course, the financing terms always differ in respect to the developers’ profile but the case of Pearl Horizon spells a negative for the financing demand for land bids. The bankers are also observing what will happen in the case of this project,” Mr. Tse said.
Having only obtained the issuance of the construction permit for the project in August 2014 (see timeline) the developer has requested the government to extend the land concession expiry date for five years to December 25, 2020; the government, however, has refused the request, saying the concession cannot be extended, citing Article 48 of the Land Law.
The developer consequently decided to take the matter to court and sue the government over its alleged delays in issuing the requisite approvals for the construction of the residential project.
“In the next few years, there are about 50 to 100 plots of land here at risk of being taken back by the government: these lands were granted on a temporary land concession [basis] in the early 1990s, for which the land use is definitely not able to be completed before the concession term ends,” said Mr. Tse, also an executive director at Hong Kong-listed property developer Keck Seng Investments (Hong Kong) Ltd.
“Developers or landholders of some of these plots will decide to take the matter to court because they would say they are not the party to blame for the development delays,” Mr. Tse said. “In the coming year, we may see many, many lawsuits if the government is taking back the plots of land with temporary concession terms ending and land use uncompleted.
Consequently, this [will] drag [down] the development of Macau and even drive down the supply of residential units.” Complex problems
At an ad hoc press briefing held last Monday, Secretary for Administration and Justice Sonia Chan Hoi Fan noted that over 3,000 units of the Pearl Horizon project have been sold. Presales for the mega residential project started as early as 2009, at a time when the government was still reviewing the construction plan for the project, some local estate agents say.
“What makes the Pearl Horizon case different from the others [with temporary concession expiring from 2016] is that the project has already seen over 3,000 units sold,” Paul Tse remarked. “The government said they had no other choice but to take back the land [of Pearl Horizon] because this is what the law requires but the case relates to not only the developer but a good number of buyers.”
“The case of Pearl Horizon is a very complex one; aside from the Land Law, the government should see how these buyers’ rights can be protected,” Mr. Tse said.
Secretary for Transport and Public Works Raimundo Arrais do Rosário emphasised in the Policy Address debate session that “there is no other way” to interpret Article 48 of the Land Law, which says temporary or conditional land concessions cannot be renewed.
A temporary or conditional land concession, which carries a validity of 25 years, can only become effective when the property project of a site is completed and is eligible for the issuance of an occupation permit, according to the Land Law. For a site with the conditional land concession not yet effective and expiry date arriving, the site will have to be taken back by the government.
“Before the Land Law [amendment] was approved [in 2013], we had already reflected that there would be problems: many plots here were granted in the 1990s under temporary concessions expiring in 2016,” Mr. Tse said, “but by the time the plots were granted in the 1990s some of them had still yet to be reclaimed – these sites were only developable in 2000 after the reclamation was finished and the underground network of cables and pipes made ready.”
The changes in the city’s urban planning requirements and new standards for environmental assessment in the past decade has also created adaptation issues for the developers’ construction plans, which in some cases lag their project development.
“In 2005, some of the locations here were inscribed on the UNESCO World Heritage List. To maintain that recognition the government mulled new requirements for the property projects and tried to come up with a new urban plan; and the developers were also trying to comply with what the government requested,” Mr. Tse said. “This caused many problems for the development of the projects, which some developers think is not their fault.” Negative signal
Both Centaline (Macau) Property Agency Ltd. and Ricacorp (Macau) Properties Ltd. expect a slowdown in the city’s housing presales in the coming months, as the Pearl Horizon case has struck buyers as a “shocking” incident negatively impacting investment sentiment. The city has seen 925 transactions of unfinished flats in the first ten months of this year, representing an 18.3 per cent decrease from 1,132 cases a year ago.
“The Pearl Horizon case is shocking to many buyers, especially when so many units of the project have been sold and yet the government is taking back the plot,” remarked Jane Liu Zee Ka, managing director of Ricacorp Macau, adding that some of the buyers were from overseas.
Ms. Liu said neither the developer nor the government had disclosed the land concession terms of the Pearl Horizon project case before.
Hong Kong-based Polytec Group, the parent of Polytex Corporation Ltd., said in May that the company had targeted the re-launch of its presale programme for Pearl Horizon for next year and that the project was slated for completion in 2018. The off-plan sales of the project were previously put on hold since the new laws on property sales activities became effective on June 1, 2013.
But now the intended pre-sales programme is put on hold as the developer of Pearl Horizon is suing the government over delays in the project.
The government said recently that if it wins the lawsuit the site for Pearl Horizon will be subject to on open bid.
“We are still counting how much the available units could be sold via off-plan sales next year, following this case of Pearl Horizon,” said Ms. Liu, “but we expect that new presales activities will only start in the second half of next year as some developers are still considering the market conditions and they are still observing what will happen in the Pearl Horizon case.”
“The case of Pearl Horizon is a complex one because it is influencing both unfinished flat owners and the banks,” remarked Centaline Macau director Jacky Shek Po Tak, “Some buyers are considering if they should stop mortgaging the flat; and if they do so, the banks can theoretically take over the ownership of the flat – however, it is still questionable whether flats will eventually be constructed.”