Hong Kong Island and Kowloon, elevated view from Victoria Peak, Hong Kong, China
Hong Kong's property boom has been fuelled by investments from mainland developers

Hong Kong’s former airport Kai Tak is remembered for the hair-raising manoeuvres required of pilots landing planes. The debt-ridden Chinese airline and conglomerate HNA Group is trying to make a safe landing of its own. On Tuesday it sold two parcels of land near the old airport to Hong Kong developer Henderson Land for HK$15.8bn ($2bn). The pull back of a formerly acquisitive group is a warning sign for the territory’s property market.

True, Henderson is paying 11.2 per cent more than the sum HNA paid for the plots less than a year and a half ago. Back then, a report by real estate services group JLL estimated that the initial price was 13 per cent above the higher end of the market. Shares in HNA’s Hong Kong-listed International Construction Investment Management rose a fifth.

The property boom has been fuelled by investments from mainland developers. Having spent just over $27bn in the year to mid 2017, HNA ranked fifth in overall landbanking in Hong Kong, according to Nomura.

In the past six months, mainlanders have participated in the market largely through joint ventures with locals. Analysts expect their role to diminish further still. Mainland purchases of assets denominated in Hong Kong dollars — pegged to the US dollar — slow down when the renminbi has been appreciating.

In November, the rental margin that residential landlords made over interest costs was 1.1 per cent. Higher prices and rates could turn that negative. The Hong Kong benchmark interest rate has been slow to follow US rates higher, in part because of abundant currency liquidity. Banks could push up their prime lending rate as demand for credit increases — but that would mark a post-crisis first.

The rise in the share price of an HNA business with an enterprise value of just HK$5.8bn ($740m) matters little. More importantly, the disposals signal turbulence ahead for property prices, as debt-laden mainlanders reduce support. Buckle up, this is likely to be a bumpy ride.

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