Hong Kong developers plunged into turmoil amid concerns Beijing targeting property firms, six firms lose US$11 billion in market value

Hong Kong’s property developers have been left reeling after a sell-off purportedly attributed to the Chinese government’s injunctions for them to serve the national interest drained 6.75 per cent from a gauge that tracks the city’s real estate stocks.

Housing affordability has long been one of the top woes afflicting Hong Kong, and Chinese government officials had long urged the city’s developers and authorities to put their resources together to address the issue, in adherence to Chinese President Xi Jinping’s idea of promoting “common prosperity”. Still, the weekend’s elections that tightened Beijing’s grip on Hong Kong raised concerns that the city’s developers may be subject to the same kind of market-cooling measures that pummelled their mainland Chinese peers.

“Although no policies have been announced, we suggest maintaining a defensive stance on Hong Kong developers,” Ken Yeung, a Hong Kong-based analyst at Citigroup, said in a report on Monday. Home prices nearing all-time highs were driving policy risk concerns amid a potential change in the city’s leadership, he added.

The concerns come after Reuters reported over the weekend that Chinese officials had told major Hong Kong developers they should use their resources and influence to champion state interests. They were also reportedly asked to help solve Hong Kong’s chronic housing shortage, which has previously been blamed on land hoarding by the developers.

Six major Hong Kong developers lost as much as US$11.28 billion in market value on Monday as investors sold their stocks on concerns about increased regulatory scrutiny. The Hang Seng Property Index, a gauge dominated by the city’s biggest developers, plunged 6.75 per cent for its single biggest decline since May 2020. The Hang Seng Index fell 3.3 per cent to end at 24,099 points.

“Sun Hung Kai Properties [SHKP] has recently paid attention to media claims that ‘the central government is putting pressure on Hong Kong real estate developers’. So far, SHKP has never received the above-mentioned news as claimed by the media, and SHKP has never approved of monopolising the market,” the developer, Hong Kong’s largest by sales, said on Monday. It added that it was actively cooperating with the Hong Kong government, taking part in land sharing plans and building large-scale transitional houses.

SHKP, Henderson Land Development, New World Development (NWD) and CK Asset Holdings all dropped by 8 to 13 per cent in Hong Kong on Monday. Markets in mainland China were closed for a holiday.

“We think that the chance of adopting these Chinese housing policies in Hong Kong is unlikely, as the central government reiterate that “One Country, Two Systems” principle remained unchanged,” said Raymond Cheng, head of China and Hong Kong research at CGS-CIMB Securities.

The Reuters report followed an earlier, rare directive in the run-up to the city’s election commission elections by Beijing that called on the developers to “take to the streets, talk to people for at least two hours and report what you have done”.

In the midst of the 2019 anti-government protests, some in Beijing had blamed deep-seated unhappiness among young Hongkongers over not being able to afford homes of their own for the unrest. The state media had criticised the city’s property tycoons for hoarding land and not developing sites to help meet the housing shortage.

Changes to the city’s electoral system have since diluted the influence of these tycoons on Hong Kong’s Legislative Council.

The report that Beijing had told the developers they must solve Hong Kong’s housing shortage was not new, as it had been mentioned in 2019 as well, said Kevin Tsui ka-kin, associate professor at Clemson University’s College of Business in South Carolina and a keen observer of Hong Kong’s housing situation.

The city’s developers have been actively donating land for transitional housing and have joined the private-public participation land scheme to show their support for the government’s move to increase housing supply since 2019. “It already shows that the rules of the game have changed, as the builders involved in these projects are unlikely to generate handsome profits,” he said.

The idea of common prosperity, which involves wealthy businesses sharing the economic pie with the rest of the population, has already galvanised big technology firms such as Alibaba Group Holding, which owns the Post, and Tencent Holdings to set aside billions of dollars for social welfare initiatives at the expense of profits and investors.

“It will hurt investors’ confidence when property companies [are] asked for more responsibilities,” Edison Pun, a senior analyst at Saxo Markets, said in a note. “The market is expected to continue the current risk-off trend given the increasing control on the economy by the Chinese government.”

Meanwhile, the Real Estate Developers Association, an industry body that represents most Hong Kong developers, including SHKP, Henderson Land and NWD, said that it had not heard of the central government meeting individual members. It said that it had, however, been communicating with the government on how to solve the problem of high property prices, which it believed would be difficult to solve in the short term.

“I have never heard of the central government meeting with our individual real estate developers. I have asked a few large [developers]. In fact, [they] have been communicating with the government and are very nervous about it,” said Leung Chi-kin, the association’s chairman.

Elsewhere, Sino Land has pledged to pour money into Hong Kong and China, calling them “wonderful places for investment” in a statement issued on Saturday. “We have been fortunate to have the opportunity to build better communities and neighbourhoods,” said Daryl Ng, the company’s deputy chairman.

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