Sat. Nov 27th, 2021

China is threatening to crush the empires of Hong Kong’s real estate magnates – once so powerful that they were seen as shadow governors of the Asian financial center – and force them to fix the city’s housing problems.

Despite Beijing’s anger, the magnates, who made their fortunes with Hong Kong’s rise to become one of the world’s most expensive real estate markets, will once again benefit as the government lays out new policies on affordable housing.

While Hong Kong’s real estate billionaires, such as the non-year-old Li Ka-shing of CK Asset Holdings, have been overtaken by those in China and India on the region’s rich lists, they remain among Asia’s richest and most influential business leaders. The Kwoks of Sun Hung Kai are the region’s second richest family, according to a 2020 Bloomberg survey. Others include the sons of another non-elder, Lee Shau-kee of Henderson Land, worth $ 31 billion, and Adrian Cheng of New World Development, a third-generation descendant of the late real estate and jewelry billionaire Cheng Yu- tung.

The real estate tycoons enjoyed great influence in Hong Kong’s political bodies for decades until protests against the government erupted in 2019. Beijing has blamed the protests on popular dissatisfaction with the city’s expensive housing market rather than on Hong Kongers’ desire to protect civil liberties granted to them following the city’s handover to China from the UK in 1997.

Critics say the Hong Kong government’s policy of selling large tracts of land has benefited the biggest magnates, who are the only ones who can afford to take part in the auctions. In return, the government picks windfalls from land sales, which make up a fifth of Hong Kong’s fiscal revenue.

But after pressure from Beijing, Hong Kong leader Carrie Lam announced affordable housing measures last month, including a scheme to turn districts in Hong Kong’s rural New Territories, near the border with mainland China, into a large residential area which is called the Northern Metropole. If fully developed to plan, the metropolis will have a population of 2.5 million people living in up to 926,000 new and existing homes.

Despite the planned increase in housing stock, Philip Tse, China real estate analyst at Bocom International, said the policy could benefit the magnates. The northern metropolis can take 15 to 20 years to realize. Meanwhile, house prices were expected to rise due to low levels of available land, Tse said. “The deficit could get worse, which gives them [the tycoons] stronger price power, ”he added.

The government’s focus on the New Areas could also help developers unlock agricultural areas in their land banks that were previously bound in red tape. Four major developers, Henderson, Sun Hung Kai Properties, New World and CK Asset, have amassed large land banks, mostly in the New Territories that total more than 100m square feet of undeveloped agricultural land, according to analysts and company reports. The four declined to comment. Real estate shares rose after Lam’s announcement of the northern metropolis.

The head of a Hong Kong investment firm said he had started buying Henderson Land in light of the northern metropolitan plan. “By the time they start building, they [net asset value] will double, ”the executive said.

Analysts said although the major developers were affected by the pandemic, their most recent financial results were more stable. Sun Hung Kai reported a 1.7 percent year-on-year increase in underlying profit, excluding property revaluations, to HK $ 29.9 billion ($ 3.8 billion) for the year ended June 30, while New World’s underlying profit was nearly 6 percent higher during the same period.

Henderson’s underlying profit rose 51 percent in the first half of 2021 compared to a year earlier, attributed in part to an acquisition. CK Asset, trumpeting its “sufficient liquidity,” reported a 30 percent increase in net profit for the first six months of 2021 compared to a year earlier.

However, the magnates will have to tread carefully. Xi Jinping, President of China, launched a campaign “common prosperity” against social inequality, suppression of monopolistic behavior.

“General prosperity should also be taken seriously in Hong Kong,” said Chen Zhiwu, a professor of finance at the University of Hong Kong. “Hong Kong property developers will be forced to donate money to charity or donate land to buy political insurance; they are under increasing pressure. ”

Indeed, two years ago, New World donated nearly 3 million square feet of farmland reserves to the Hong Kong government, while Henderson said it would lend nearly 500,000 square feet to the government for transitional housing for those awaiting placement of public housing. While analysts said developers may have to donate more to survive, it will hardly affect profits.

“You donate 20,000 square feet or even 100,000 square feet… It’s nothing for them,” says Bocom International’s Tse.

A Chinese official said that although Beijing was very unhappy with the magnates, it could not intervene directly in land policy because of the “one country, two systems” framework that gives Hong Kong considerable autonomy after the handover.

But whatever their financial power, Beijing is eager to combat their political influence. China diluted its power in a recent election, which a pro-Beijing lawmaker said was necessary to remove obstacles to new housing policies.

“The excessive and illegal monopoly by [Hong Kong’s] property developers must be broken, and social justice must be achieved, ”Tian Feilong, director of the Chinese Association of Hong Kong and Macau Studies, a semi-official think tank, told The Financial Times.

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