HK’s Big Four property groups face competition from mainland players

Hong Kong

Can Hong Kong’s billionaire heirs keep their grip on the city? Given Beijing’s increasing assertiveness in the territory, it’s a question worth asking.

For the past five decades, Hong Kong’s family dynasties have controlled the city’s riches, largely thanks to their hold on some of the world’s most expensive real estate. Hong Kong has more ultra-rich individuals than any other city in the world – and eight of its 10 richest men (yes, they’re all men) are directly involved in the property sector.

The last of Hong Kong’s “Big Four” property empires is now handing the reins to a younger generation, a cumulative transfer worth $109 billion,  according to Bloomberg reporters Venus Feng and Blake Schmidt.

Lee Shau Kee, the city’s second richest man, said last week that he’s passing the baton at Henderson Land Development Co. to his two sons, a year after Victor Li took over the empire of his father, and Hong Kong’s richest man, Li Ka-shing. The Cheng family of New World Development Co. oversaw a succession in 2012. And at Sun Hung Kai Properties Ltd., where 66-year-old Raymond Kwok is chairman, a younger generation took over in 1990 after the death of founder Kwok Tak-seng.

These families have long benefited from close ties to the Hong Kong government and the city’s banks. But the younger set doesn’t necessarily have the same political capital with Beijing.

That’s why an extradition law in the works is currently making Hong Kong’s business community particularly nervous. If passed, the legislation could transfer fugitives in the city to China, where courts are under control of the ruling Communist Party.

Money hasn’t helped multimillionaires caught up in President Xi Jinping’s sweeping corruption crackdown. Last May, the former chairman of Anbang Insurance Group Co., billionaire Wu Xiaohui, was sentenced to 18 years in prison after a one-day trial, where he was convicted of fraud and embezzlement.

The head of Hong Kong’s pro-business  Liberal Party has criticized the proposed law, saying it would hurt foreign investment in the city. The silence from the city’s developers, meanwhile, has been deafening.

A bigger threat to Hong Kong’s property tycoons is perhaps growing competition from mainland developers, who stand to benefit from Beijing stretching further into Hong Kong.

These firms ramped up their presence in the city three years ago as Chinese officials ratcheted up efforts to cool the domestic property market. Conglomerate HNA Group Co.’s ability to beat local players in its bid for four plots of land at the former Kai Tak airport came as a shock. Mainland developers have logged $12 billion worth of land deals in Hong Kong in the last three years.

Over the past year, Chinese real estate firms, including HNA, have started to shrink their footprint in the city, as Beijing pressures debt-laden companies to lighten their load.

But mainland developers still have massive balance sheets: Take China Vanke Co., which had total assets last year of $222 billion, compared with just $61 billion for New World Development. As soon as Beijing reopens funding taps, the city’s developers could find themselves on the back foot once again.

There’s a Chinese saying that “wealth never survives three generations.” Educated at some of the world’s most elite schools, many of Hong Kong’s property heirs may be savvy enough not to fritter it away. They’re still flush with cash and Hong Kong’s record real estate prices are making them richer by the day.

But their dominance will fade. At the end of 1997, Chinese firms comprised just 16% of the market value of Hong Kong’s stock exchange; now they account for around 68%. It’s just a matter of time before the city’s real estate goes the same way.

Bloomberg