Hong Kong’s Property Tycoons Sacrifice Profit to Appease Beijing
(Bloomberg) -- One Hong Kong developer is offering half-price flats in the world’s most expensive residential market. Others have donated sprawling farmlands for public housing. And the scion of a property empire says it’s time to put the city’s betterment above profits.
Two years after street demonstrations rocked Hong Kong and Chinese authorities pointed a finger of blame at sky-high home prices, the city’s tycoon developers are under pressure to help ease its housing crisis. Asia’s pre-eminent financial hub isn’t just expensive, it’s also one of the world’s most densely populated, squeezing most of its 7.5 million dwellers into tiny flats, or worse into smaller “cage” or “coffin” homes.
Attention from Beijing has made questions of equity and affordability an urgent concern for developers who’ve long profited off Hong Kong’s unbalanced market. On the mainland, Xi Jinping’s crackdown on housing speculation and monopolistic business practices has brought numerous billionaires to heel. In Hong Kong, Carrie Lam’s government has accelerated seizures of vast land banks held by local magnates and diluted their political power. The message is clear: better to be seen as part of the solution than the problem.
Under a new generation of leadership, the property dynasties are now burnishing their philanthropic credentials -- helping to build almost 10,000 social housing units on land they donated to charities following the protests. Several heirs told Bloomberg they will keep doing charitable work, with one saying they are prepared to sacrifice some profits as a result.
“They are capitalists -- winner takes all. That’s still the spirit of Hong Kong,” Bernard Chan, convener of Lam’s Executive Council, said in an interview. “But I think the younger generation now rising in the management totally understand that you cannot just simply ignore the needs of the people.”
Hong Kong’s biggest developers, including Li Ka-shing’s CK Asset Holdings Ltd., Lee Shau Kee’s Henderson Land Development Co., the Cheng family’s New World Development Co. and the Kwoks’ Sun Hung Kai Properties Ltd., owe much of their success to government policies that encouraged a small group of deep-pocketed firms to bid at auctions of land parcels, fueling the city’s affordability crisis. The wealth they amassed helped them expand into industries including electricity and gas utilities, supermarket chains and telecommunications.
The vast government income generated from land auctions has long supported Hong Kong’s low-tax capitalist system, making it a successful international financial hub.
But since protests challenging the mainland’s grip on the city, the developers’ political influence has waned. Chinese Vice Premier Han Zheng told local officials in March that they needed to work on solving the housing problem. A few months later, the head of China’s top agency overseeing Hong Kong, Xia Baolong, set a goal to tackle the issue and bid farewell to cage homes or coffin-like subdivided apartments for the poor.
In May, at China’s behest, Hong Kong handed more than 10% of developers’ votes to select the city’s chief executive to smaller businesses and mainland Chinese firms.
The change in the electoral system is a sign that for “all these conglomerates, their wings have been clipped,” said Regina Ip, a lawmaker and also a member of Lam’s Executive Council.
Even so, the tycoons went out of their way to publicly support the move, placing advertisements in pro-Beijing newspapers. During a campaign to promote the election revamp in September, heirs including Henderson Land’s Martin Lee and Sun Hung Kai’s Adam Kwok were seen handing out leaflets to residents explaining China’s vision for Hong Kong.
When asked whether they face pressure from Beijing, spokespeople from Sun Hung Kai and New World declined to comment. CK Asset and Henderson Land didn’t immediately respond to requests for comment.
Local real estate firms have become less important to China since 2019’s political turmoil, said one heir, who spoke on condition of anonymity, adding that Beijing expects them to uphold national security and support the Hong Kong government.
Firms including Henderson Land and Sun Hung Kai have donated at least 2 million square feet of land, equivalent to about 30 football fields, for social housing since 2019. In December, New World unveiled a plan to offer 300 homes at about half of their market price, becoming the first private-sector developer to subsidize housing in the city.
At least one property scion has framed the donations as part of his company’s growing interest in charity, rather than an effort to appease Beijing. The post-millennial generation craves “purpose over profits,” New World Chief Executive Officer Adrian Cheng said in a recent speech at the University of Hong Kong. “Charitable efforts and business opportunities should be intertwined.”
Brian Wong, a researcher at non-government organization Liber Research Community, is skeptical. He calls the land donations “PR stunts” since the property is given to charities on a temporary basis. “Will they solve the housing shortage? No,” he said. Better for the government to seize land permanently for public housing, he said.
Lam’s government has taken back around 90 hectares (222 acres) over the past two years, compared with just 20 hectares in the previous five, it said in May. It’s looking to claw back 700 hectares in the future.
The authorities have so far steered clear of Chinese-style price restrictions, a move some investors had feared a few months ago. Instead, Lam plans to expand land supply by building a new urban center in the city’s rural north -- with the developers’ help.
Her goal is for a Northern Metropolis to transform the territory bordering mainland China into a residential and high-tech hub for 2.5 million people. If executed right, it could be a boon for the property clans, who own at least 100 million square feet of land in the area -- almost three times the size of New York’s Central Park.
The plan shows that the government realizes it’s more efficient to cooperate with the developers, said Philip Tse, director and head of Hong Kong and China property research at Bocom International Holdings Co.
Developing a Northern Metropolis ensures business opportunities for the city’s biggest builders, Tse said. The message from the central government is stick to the rules and don’t try to influence policy, he added.
While details of the initiative have yet to be ironed out, builders have publicly expressed their support. The Real Estate Developers Association said the endeavor will boost housing supply. New World said it would help the government implement the project, and Sun Hung Kai also praised it. CK Asset and Henderson Land didn’t respond to requests for comment.
Such enthusiasm for a plan that integrates Hong Kong with China also reflects the need to been seen as cooperative amid increasing scrutiny from Beijing. The developers are aware that to keep off Xi’s radar they will need to play their part to make homes more accessible and address inequality, conversations with real estate executives show.
“I don’t think the large companies in Hong Kong feel the same level of obligation as would their counterparts on the mainland,” Chan said. “But I think they all get it now, they are doing it.”
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