Finance

Hong Kong’s richest families hit by property slide

April 10, 2023

Shares in Hong Kong’s 4 greatest family-owned builders have dropped greater than a 3rd prior to now 4 years, with practically $50bn wiped off their market capitalisation as Covid-19 restrictions and rate of interest rises took a toll on the property market.

4 households dominate the Hong Kong property market: the Lis of CK Asset, the Kwoks of Solar Hung Kai Properties, the Lees of Henderson Land and the Chengs of New World Growth.

The share costs of their Hong Kong-listed shares have fallen by a median of about 35 per cent since April 2019, with their mixed market worth falling from about $132bn to $86bn by the tip of March. New World and Henderson noticed the largest declines, of 62 per cent and 40 per cent, respectively.

“It’s positively a more durable time than it has been prior to now,” mentioned John Burns, an honorary professor of politics and public administration on the College of Hong Kong. On high of the property slide and the 2019 protests that hit the economic system, Beijing “has been marginalising tycoons”.

Below a coverage established throughout British colonial rule, solely a tiny group of deep-pocketed households can bid for land plots at authorities auctions. Rising property costs over the previous a number of many years have fuelled the growth of those households into retail, infrastructure and telecommunications.

However in opposition to the backdrop of a 40 per cent drop in house gross sales and a 15 per cent fall in residential property costs final yr, underlying earnings at Solar Hung Kai, town’s largest developer by market worth, and New World Growth fell 36 per cent and 14 per cent, respectively, for the six months ended December 2022, whereas underlying revenue at Henderson Land additionally fell by 29 per cent in the entire of final yr.

CK Asset, based by Hong Kong’s richest man Li Ka-shing, posted a 2 per cent achieve in revenue final yr regardless of income from property gross sales in Hong Kong and mainland China falling 30 per cent, as asset disposals and a return to revenue by its UK pub enterprise Greene King helped buoy total returns.

Builders have been additionally damage by powerful lockdowns in mainland China, the place their mixed income final yr was $4.8bn, down 40 per cent from the yr earlier than and the bottom since 2019.

The tycoons’ political affect has additionally weakened. Victor Li, the elder son of Li Ka-shing and chair of CK Asset, was in March stripped of his function on the standing committee of China’s high political consultative physique. Victor Li will keep on as a member of the physique however the transfer shocked analysts.

“It’s actually odd for somebody to stay as only a member on the CPPCC [Chinese People’s Political Consultative Conference] however doesn’t get to remain on the standing committee,” a pro-Beijing politician mentioned.

In a press release, Victor Li mentioned he had held the standing committee place for twenty years and there have been “some ways to serve the nation”.

Analysts and pro-Beijing politicians urged the transfer symbolised the Li household’s waning favour with Beijing, after Li Ka-shing was accused by Beijing’s Central Political and Authorized Affairs Fee of “condoning crimes” by pro-democracy protesters in 2019.

Ho-fung Hung, a professor of Chinese language political economic system at Johns Hopkins College, mentioned Beijing’s mistrust of Hong Kong enterprise magnates was additionally evident in strikes to scale back their energy within the metropolis’s de facto parliament.

“Beijing has been working to scale back the political affect of HK enterprise tycoons . . . that is all a part of the shift of Beijing coverage from allying with non-public entrepreneurs within the mainland and Hong Kong [under previous Chinese leaders] to suspecting and even repressing the affect of them beneath [Xi Jinping].”

As house possession stays largely unaffordable to most residents of the extremely unequal metropolis, tycoons have confronted strain to construct extra housing. “[Beijing is] mainly telling them: We’d like your co-operation, we’d like your assist. However you need to work with us on our coverage priorities,” mentioned Burns.

The weak property market has additionally offered a possibility for Hong Kong’s property barons.

CK Asset and Solar Hung Kai have change into two of the territory’s most energetic bidders for residential and industrial land as Chinese language builders, hamstrung by Beijing’s clampdown on property sector debt, remained on the sidelines and international companies decreased publicity to the market.

Whereas a glut of latest workplace house is anticipated to come back on to the market within the coming years, there are some indicators of restoration within the wider property sector. In early March, Solar Hung Kai bought all 352 flats in a brand new challenge for greater than $255mn. Costs of present properties have climbed at the very least 7 per cent because the starting of the yr, based on Hong Kong property company Centaline.

Heron Lim, an economist at Moody’s Analytics, mentioned: “Hong Kong property builders haven’t seen a debt publicity akin to their mainland Chinese language counterparts.” Within the occasion of a restoration, “the Hong Kong companies may very well be effectively positioned”.