The former cop, backed by Chinese President Xi Jinping, has pledged to turn Hong Kong into an innovation hub in a bid to reduce its dependence on finance and real estate. He also promised to solve the housing crisis in the world’s least affordable market, which Beijing has blamed for the sometimes violent, pro-democracy protests in 2019.
While Lee’s four predecessors tried to improve living standards, few proposals were successful in a city known for its “cage” or “coffin” houses – 9.43 sq m of stacked bed space – and his mansions that sell for over $110 million. in uptown neighborhoods.
The problem is deeply rooted in Hong Kong’s scarce land resources. Only a quarter of the area is suitable for residential and commercial development.
Even though real estate is not listed as a category contributing to the city’s gross domestic product, the government has a deep connection to the industry. The land premium and stamp duties represent a third of the total revenue of the Public Treasury. This in turn has benefited Hong Kong’s 7.4 million people who have access to some of the best public infrastructure, while helping to keep the income tax rate capped at 17%. There are no levies on capital gains, dividends, sales or inheritance.
“Least Affordable City”
Home prices in Hong Kong jumped 134% from 1997 and quintupled from a low in 2003, according to the monthly Centaline Property Centa-City Index, outpacing household income growth. For 12 consecutive years, it held the position of “least affordable city”.
“Hong Kong’s housing problem is the key driver of worsening income inequality, but also the lack of innovation,” said Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis. “The government itself depends on revenue from land auctions, so it has no interest in seeing house prices fall.”
Real estate has always been at the center of some of Hong Kong’s legendary fortune stories.
Li Ka-shing, 93, cemented his fortune with a series of timely property bets in the city, where he settled after fleeing the mainland as a World War II refugee in the 1940s. like “Superman” for his business acumen, he built a massive multinational conglomerate, which is now led by his son, Victor Li. His youngest child, Richard Li, separated from the family to build his own empire, and his net worth is around $5.1 billion.
Traditional Hong Kong developers have also successfully defended their monopoly power against competition from across the border. Mainland peers such as China Evergrande Group and Kaisa Group Holdings have made aggressive forays into the city over the past five years, but a debt crisis has forced them to sell most of their projects to local families.
The five wealthiest clans behind the city’s biggest builders – Sun Hung Kai Properties, CK Asset Holdings, New World Development, Henderson Land Development and Wheelock Properties – have amassed a combined fortune of $125 billion, the equivalent one-third of the city’s GDP. Representatives for CK Asset, Sun Hung Kai and New World declined to comment, while the others did not respond to emails seeking comment.
The laissez-faire policy that allowed tycoons such as Li to emerge worked well when Hong Kong was a manufacturing base with a stable middle class before the handover. However, with China’s rise as the factory of the world, the city turned to finance. Manufacturers began to disappear into the territory, while developers moved into infrastructure, retail, telecommunications and energy, limiting opportunities for others. In the meantime, high rents have also discouraged start-ups and new businesses.
“When many foreign companies come to Hong Kong, they find office space always expensive,” said CK Lau, managing director of Colliers International Group, who began his career in property appraisals in the 1980s. the result is that our competitiveness has diminished, without people being sufficiently aware of it over the years.”
Apart from wealth, the tycoons have also accumulated significant political clout over the decades thanks to their close ties to Beijing. As members of an electoral college, they help choose Hong Kong’s chief executive every few years. These ties have been tested by recent tumultuous events: the imposition of a sweeping national security law in the former British colony to stifle any remnants of the pro-democracy movement; Xi’s Common Prosperity Campaign and his harsh crackdown on Chinese tech and real estate companies.
The developers are now looking to stay relevant by showing they are more loyal to Beijing than ever. Many have become more charitable, donating land and resources for transitional housing, echoing the government’s commitment to helping young people climb the social ladder.
Some real estate moguls are also trying to reshape Hong Kong’s business landscape. A recent example is local COVID testing company Prenetics Global, a Nasdaq-listed biotech unicorn backed by New World’s Adrian Cheng. The offshoot of the property has contributed to its listing through its special purpose acquisition company.
But Hong Kong’s future transformation may take more than a successful listing to catch up with Singapore.
Elected by acclamation in May with the enthusiastic endorsement of nearly every real estate mogul, Lee signaled that a heavy reliance on real estate could be detrimental to the city’s future.
In its basic policies, it stressed the need to accelerate its development as a center of innovation and technology, possibly with links to hubs in the mainland’s Greater Bay Area which includes metropolises such as Shenzhen. .
“There’s nothing wrong with having rich people in a city,” said Tang of the University of Hong Kong. “I would like to see more young people have better job prospects, and it will not be a bad thing for the development of the city to have a rotation in the top 10 with young entrepreneurs from new economic activities.”
— Bloomberg Heritage