China threatens to crush the empire of Hong Kong’s real estate giants — once so powerful they were seen as the shadow governors of the Asian financial center — and force them to solve the city’s housing problems.
Although Beijing is angry, these tycoons who have made their fortunes after Hong Kong has emerged as one of the most expensive real estate markets in the world will benefit once again with the Hong Kong government’s new affordable housing policy.
Although Hong Kong’s real estate billionaires, such as Li Ka-shing of Yangtze River Asset Holdings, have been surpassed by Chinese and Indian rich in the region’s rich list, they are still the richest and most influential business leaders in Asia. According to a 2020 survey by Bloomberg, the Kuok family of Sun Hung Kai Properties is the second richest family in the area. Others include the son of another US$31 billion Henderson Land Development, Lee Shau Kee, and Zheng Yudong, the third-generation heir of the late real estate and jewelry billionaire Zheng Yutong.
For decades, real estate giants enjoyed tremendous influence in Hong Kong’s political institutions until anti-government protests broke out in 2019. Beijing blamed the protests on people’s dissatisfaction with Hong Kong’s expensive real estate market, rather than Hong Kong people’s desire to protect the civil liberties granted. After the city was handed over from the UK to China in 1997.
Critics say that the Hong Kong government’s policy of selling large amounts of land has benefited the most wealthy, and they are the only people who can participate in the auction. In return, the government got a windfall from land sales, which accounted for one-fifth of Hong Kong’s fiscal revenue.
But under pressure from Beijing, Hong Kong leader Carrie Lam announced last month measures for affordable housing, including a plan to transform Hong Kong’s rural New Territories bordering mainland China into a vast residential area known as a northern metropolis. . If developed in full accordance with the plan, this metropolis will have a population of 2.5 million, living in as many as 926,000 new and existing houses.
Despite plans to increase housing supply, Philip Tse, a Chinese real estate analyst at Bank of Communications International, said the policy may benefit tycoons. The northern metropolis may take 15 to 20 years to achieve. At the same time, due to the low level of available land, housing prices are expected to rise, Xie said. “The shortage may become more severe and make them [the tycoons] Stronger pricing power,” he added.
The government’s focus on the New Territories can also help developers unlock agricultural areas in their land banks that were previously constrained by red tape. According to analysts and company reports, the four major developers of Henderson Land Development, Sun Hung Kai Properties, New World and Yangtze River Assets have accumulated a large amount of land reserves, most of which are located in the New Territories, with a total area of more than 100 million square feet of undeveloped farmland. The four declined to comment. After Lin announced the northern metropolis, real estate stocks rose.
The person in charge of a Hong Kong investment company said that in view of the plans of the northern metropolis, it began to buy Henderson Land. “When they started building, their [net asset value] Will double,” the executive said.
Analysts said that although large developers have been affected by the pandemic, their recent financial performance has been more stable. Sun Hung Kai announced that its basic profit (excluding property revaluation) for the year ended June 30 increased by 1.7% year-on-year to 29.9 billion Hong Kong dollars (3.8 billion US dollars), while New World’s basic profit was in the same period.
Henderson’s basic profit for the first half of 2021 increased by 51% compared to the same period last year, partly due to acquisitions. CK Asset touted its “sufficient liquidity” and reported that its net profit for the first six months of 2021 increased by 30% compared to the same period last year.
However, tycoons need to proceed with caution. Chinese President Xi Jinping launched a campaign called “Common Prosperity” to oppose social inequality and combat monopolistic behavior.
“Hong Kong should also take common prosperity seriously,” said Chen Zhiwu, a professor of finance at the University of Hong Kong. “Hong Kong real estate developers will be forced to donate money for charity or donate land to buy political insurance; they are under increasing pressure.”
In fact, New World donated nearly 3 million square feet of arable land reserves to the Hong Kong government two years ago, and Henderson stated that it would provide nearly 500,000 square feet of transitional housing to the government for people waiting for public housing resettlement. Although analysts say that developers may have to donate more to survive, this will hardly affect profits.
“You donated 20,000 square feet or even 100,000 square feet… which is nothing to them,” said Xie from Bank of Communications International.
A Chinese official said that although Beijing is deeply dissatisfied with these tycoons, it cannot directly intervene in land policy because the “one country, two systems” framework gives Hong Kong considerable autonomy after the transfer.
But regardless of their economic strength, Beijing is keen to contain their political influence. China weakened their power in a recent election, and a pro-Beijing lawmaker said that the election needs to remove obstacles to the new housing policy.
“Excessive and illegal monopoly [Hong Kong’s] Real estate developers must be broken and social justice needs to be achieved,” Tian Feilong, president of the China Hong Kong and Macau Research Association, a semi-official think tank, told the Financial Times.