China has blocked the United States Consulate in Hong Kong from selling its residential complex in the south of the city to Hang Lung Properties, as it demands that Washington get approval from Beijing.

Hang Lung said it received a letter from the Land Registry through its legal advisers on Dec. 21 which stated the U.S. Consulate General in Hong Kong was not a commercial entity and that the 37 Shouson Hill Road complex was not an ordinary piece of real estate as such. Sale of the property involved Sino-U.S. foreign affairs and should not be regarded as an ordinary commercial activity, the letter said.

China had also advised the Hong Kong government that if the consulate intended to rent, buy or sell any local real estate, Washington must write in to apply to the central Chinese authorities via its foreign ministry’s commissioner in Hong Kong at least 60 days prior, and shall not proceed with the intended transaction without the written consent of Beijing, according to the letter.

Chinese Foreign Ministry spokesperson Wang Wenbin confirmed the conditions at a regular press briefing on Wednesday, saying that the criteria applied to all U.S. outposts in the country. Any new construction, redevelopment, expansion or repair of U.S. missions in China was subject to approval as well, for which the application must be made in written form in detail, Wang said.

The transaction in question involved foreign and diplomatic matters that were within the prerogative of China and the U.S. as sovereign states, and hence outside of the control of Hang Lung, the developer said. Hang Lung was currently evaluating various appropriate actions that could be taken, including the feasibility of extending the time for completing the sale, it added.

In response to enquiries from Apple Daily, Hang Lung said it had nothing more to add, while the consulate said that it was inconvenient to comment as both sides required more time to handle the transaction.

The U.S. bought the residential complex in 1948 and used it to house staffers. It put the property on sale earlier this year on the grounds of reorganizing Washington’s overseas assets. Hang Lung’s bid of HK$2.566 billion (US$331 million), accepted in September, was on par with the lowest expected price by the market and represented a 40% drop in price per square foot compared with a similar purchase made by China Resources Land two years ago.

The residential complex consists of 26 apartments, 52 parking slots in six low-density housing blocks, and an outdoor swimming pool. It has a site area of 94,796 square feet, with about 47,397 square feet available for redevelopment.

Hang Lung is one of Hong Kong’s top developers and was publicly listed in the 1970s. It has not bought land locally for 20 years.

The developer obtains half of its revenues in mainland China, where it possesses 20 million square feet in land reserves. Ongoing projects in Hong Kong include the redevelopment of an office building on Electric Road and of the Kowloon Bay Amoycan Industrial Centre, expected to be completed in 2022 and 2023 respectively.

The sale suspension had to do with political concerns as China took action to freeze U.S. assets in Hong Kong, said Kevin Tsui, associate professor of economics at Clemson University. The U.S. or related political figures would face similar issues when they tried to sell local assets, Tsui said.

It was unprecedented for a land or property sale to be scrapped due to diplomatic issues, surveyor Albert So said. There was no knowing whether the transaction could take place eventually, he said.

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