Tung Kok Tau in Shenzhen

The Group holds 49% interests in a joint venture, which holds a piece of land located in Tung Kok Tau, Nanshan District, Shenzhen. The joint venture has ceased business operations since the expiry of its operation period in January 2014.

During the period under review, Shenzhen Zhen Wah Harbour Enterprises Ltd. (“Zhen Wah”, the JV in which the Company holds 49% of equity interests), which previously held interests in a piece of land located in Tung Kok Tau, Nanshan District, Shenzhen (the “Previous Land”), previously was under proceedings of compulsory liquidation (the “Compulsory Liquidation”) which commenced in July 2016 under supervision of Shenzhen Intermediate People’s Court of Guangdong Province (the “Court”) and management of a liquidation committee as appointed by the Court. Such proceeding had subsequently been withdrawn in May 2023 pursuant to a memorandum (the “Memorandum”) signed among the Group, the jointer venture partner of Zhen Wah (“JV Partner”) and others in April 2023. The Group and the JV Partner jointly continued to work together to complete the Land Swap and Land Allocation (as defined below) on a joint and voluntary basis without the Court’s proceedings.

In the period, the Group continued to work actively with the JV Partner and the relevant official authorities in respect of a land swap (the “Land Swap”) that was to surrender the Previous Land to 深圳市規劃和自然資源局南山管理局 (Nanshan Administration of Shenzhen Municipal Bureau of Planning and Natural Resources) (the “Bureau”) in return for a new piece of land (the “New Land”) to be granted by the Bureau and division of the New Land into two plots of land nos. K709-0003 and K709-0004, to be allocated to the Group and JV Partner respectively (the “Land Allocation”) according to the Memorandum, relevant agreements, laws, regulations and procedures.

As announced by the Company on 20 December 2023, Dynamic (B.V.I.) Limited (“Dynamic BVI”, a shareholder of Zhen Wah and a wholly-owned subsidiary of the Company) entered into 深圳市國有建設用地使用權出讓合同 (Shenzhen State-owned Construction Land Use Rights Transfer Contract) (the “Group Land Transfer Contract”) with the Bureau on 14 December 2023, in which the Bureau agreed to grant the land plot no. K709-0003 (the “Group Allocated Land”) to Dynamic BVI, while the JV Partner also entered into 深圳市國有建設用地使用權出讓合同 (Shenzhen State-owned Construction Land Use Rights Transfer Contract) with the Bureau, in which the Bureau agreed to grant the land plot no. K709-0004 (the “JV Partner Allocated Land”) to the JV Partner. A supplemental agreement to the Group Land Transfer Contract was entered into on 15 December 2023 between the Bureau, Dynamic BVI and 深圳市達力房地產開發有限公司 (Shenzhen Dynamic Real Estate Development Co., Ltd.) (“Shenzhen Dynamic”), a wholly-owned subsidiary of the Company established under the laws of the PRC, pursuant to which the Bureau had agreed that the land use rights of the Group Allocated Land to be changed from Dynamic BVI to Shenzhen Dynamic according to the relevant agreements, laws, regulations and procedures.

The Group Allocated Land (K709-0003) is located to the east of 後海大道 (Hou Hai Avenue), to the south of 蛇口新街 (Shekou New Street), to the north of 望海路 (Wang Hai Road) and to the west of the JV Partner Allocated Land, and has a site area of approximately 65,000 square metres and developable gross floor area of approximately 179,000 square metres (including 143,000 square metres for residential use and 29,000 square metres for commercial use and others for supporting ancillary facilities). The Group Allocated Land was for multi-purpose development, with 建設用地規劃許可證 (The Construction Land Planning Permit) and 不動產權証書 (Stated-owned Land Use Right Certificate) as issued by the Bureau to the Group in August 2023 and February 2024 respectively. The Group Allocated Land is held as properties under development.

Moreover, the Group, JV Partner and Zhen Wah had settled the land premium which was paid by Zhen Wah to the Bureau in respect of the Previous Land for the purpose of the Land Allocation in accordance with the respective percentages of equity interests in Zhen Wah. Further, the Group recognised a fair value gain of the Group Allocated Land in the period under review in the sum of RMB11,537,708,000 (equivalent to HK$12,629,669,000) as valued by an independent valuer. As such, the Group recognised a profit of Zhen Wah in the amount of RMB11,543,284,000 (equivalent to HK$12,635,773,000) including the above fair value gain in the period, which was a non-cash item. In this connection, the Group has provided deferred tax in the sum of RMB6,623,071,000 (equivalent to HK$7,249,897,000) to be settled when the properties of the Group Allocated Land are developed and being disposed of. It had been noted that there would be relevant substantial construction and development costs required to be incurred by the Group in connection with the Group Allocated Land in the future.

In the period under review, Zhen Wah repaid the Group’s advances in the amount of RMB210,629,000 (equivalent to HK$230,564,000) previously granted by the Group to it for payment of land premium of the Previous Land together with interest, which was funded by JV Partner pursuant to the Memorandum.

As further announced on 23 December 2023, there was historical disputes over Zhen Wah between the Group and JV Partner, including the change of equity interests from 80% to 49% in Zhen Wah in prior years (the “Historical Disputes”). Based on the PRC legal advice received by the Group, the Group was entitled to the distribution of profit arising from the relevant income generated from the Previous Land held by Zhen Wah before re-development, as supported in the arbitral award made in 2010 after arbitration between the Group and JV Partner in respect of the Historical Disputes. As such, the Group continued to act proactively and to seek PRC legal advice and to take expedient actions (including but not limited to litigation and/or arbitration) to further strive for the best interest of the Group in Zhen Wah and its assets in respect of the Historical Disputes.

Meanwhile, as previously disclosed, an ex-tenant lodged several administrative proceedings with the Court against the relevant official authorities concerning the Previous Land as defendants and joining Zhen Wah as a third party, opposing the relocation compensation agreement made between the Bureau and Zhen Wah in 2021 for demolition, relocation and compensation of those buildings, erections and equipment on the Previous Land and claiming for compensation. In the period, the Court gave a judgement of the administrative proceedings in which the ex-tenant as the plaintiff and the relevant official authorities as defendants appealed, with Zhen Wah named as a third party. As advised by the Group’s PRC legal adviser, Zhen Wah had a defence to the claims under the administrative proceedings on the basis that the claims were lacking in factual and legal basis. The Group and the JV Partner will closely monitor the development of the administrative proceedings and take appropriate actions as and when necessary, based on the advice of its PRC legal adviser.

The metropolis Shenzhen, being the official Shenzhen Demonstration Pilot Zone and high-tech hub as well as the mainland’s top city for overall economic and digital competitiveness and premier special economic zone, is expected to continue its growth with high-quality development under official support. In addition, the development of transportation network in Shenzhen stimulates intra-city and intercity connections, enhancing the cross-boundary flows of people, logistics, information, and capital, that it acts as the core and pivotal role in the development of Guangdong-Hong Kong-Macao Greater Bay Area.

Meanwhile, the real estate market is primarily impacted by the ongoing policy restrictions on purchasing eligibility and financing, economic uncertainties and challenges with softened market sentiment, yet the outlook for Shenzhen’s property market is expected to regain economic growth and remain positive as highly livable city, supported by the strong economic and demographics fundamentals along with official supportive reform. This will enhance the development value of the Group Allocated Land in Tung Kok Tau, Nanshan District, Shenzhen.

The Group will continue to seek PRC legal advice and to further strive for the best interest of the Group in relation to Zhen Wah and its assets in respect of Historical Disputes. Meanwhile, the Group will continue to work with the relevant parties to optimise city planning of the Group Allocated Land in line with the projects of adjacent opera house and infrastructure.

Further details can refer to the interim report of the Company for the six month ended 31 December 2023.