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Li Xueying

The Straits Times

Publication Date : 27-02-2013

Buy hotel rooms for one's own stay and avoid paying residential stamp duty?

That was the bait that Cheung Kong, tycoon Li Ka Shing's property conglomerate, dangled to prospective buyers. Many bit, and last week, all 360 units in the Apex Horizon hotel in Kwai Chung were sold.

But the sale, which netted the developer HK$1.4 billion (US$180 million), has since been embroiled in controversy, with the Legislative Council yesterday debating the legal loophole that allowed it.

Warned Development Secretary Paul Chan: "If the suites are not used for their designated purpose as hotel rooms, the authorities will take steps, including the possibility of seizing them."

Bernadette Linn, director of the Land Department, said: "If the rooms are used for the owners' own stay, we will take action. Even if the parties try to disguise it, we will not rule out going to court to settle the matter."

But the question remains as to how the authorities would be able to demonstrate that the rooms are used improperly.

Property surveyor K. Cheung said what matters is that technical procedures are followed.

"You must enter into a lease agreement with the operator even if you are the owner. Then you can live in it."

Meanwhile, a clause in an operational agreement signed by the buyers with Cheung Kong said it was up to the owner to instruct the hotel operator to set the room rate. This could mean he or she can set it so high there would not be bona fide guests.

Cheung Kong had exploited an old legal loophole which allowed hotels to be sold in parts. This was plugged in July 2003, when the government specified in land leases that hotels had to be sold as a whole. The company had obtained approval for Apex Horizon before that.

The developer and its agents told buyers they can lease their hotel room to whomever they want or stay in it themselves, so long as they sign the operational agreement. The units are classified as commercial properties so buyers do not have to pay stamp duty, which was introduced for residential property last year.

In an apparent effort to prevent recurrence of such sales, the latest round of property curbs announced last Friday, including a doubling of stamp duty, will now cover commercial and industrial property. This also means that if the buyers of the Apex Horizon units resell them, they will be affected by the stamp duty.

The controversy comes as the city's residents, hit by low interest rates and awash in liquidity, look for vehicles in which to park their money. Demand had even pushed the prices of carpark spaces to HK$1.3 million.

The hotel rooms priced at HK$5,200 per sq ft (psf) - cheaper than the HK$8,000 psf flats in the neighbourhood - thus looked like attractive bets. This was, at least, until the warnings from the government, which prompted four investors to make police reports over the weekend.

One, speaking outside a police station, told the South China Morning Post: "I trusted Li Ka Shing, that this would be okay. But now, the lawyers' advice differed from what Cheung Kong has said. I was told I could live there before signing the provisional agreement. But the lawyers told us afterwards we cannot decide (whom we lease the room to)."

A spokesman for Cheung Kong said the company had not received any complaints and reiterated that owners can lease their rooms to whomever they want.