The Nanjing government has terminated the sale of a parcel of land to Wharf (Holdings) (0004.HK) and China Merchants Property Development (200024.SZ) and reclaimed the site due to outstanding land premiums. The government will also keep the US$32 million deposit the developers put down following their successful US$350 million joint bid for the land in December 2007. Wharf said it had factored the loss into its 2008 accounts after deciding to drop the project.
It is the first time a Hong Kong property developer has been penalized by mainland authorities for such a transgression. There are many regulations on Beijing’s books regarding the use of land – confiscation of land that hasn’t been paid in full according to contract terms or that hasn’t been developed two years after initial purchase – but it is unusual that the first culprit is such an established company such as Wharf.
While this appears to be a localized incident, it is certain to serve as a reminder that developers, both local and offshore, will continue to operate on the mainland only at the mercy of the policy makers. There is a strong correlation between an over-heating property market and efforts by the authorities to implement rules that are extant but rarely, if ever, used. Developers, and investors, should heed what officials are saying.