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After months of protests and Covid-19 restrictions, Hong Kong\u2019s biggest property tycoons are feeling the pinch.<\/p>\n
At Peter Woo\u2019s Wharf Real Estate Investment Co., retail rental income plunged by almost a third in the first half of the year, leading to a loss and a HK$7.4 billion ($955 million) hit to its portfolio. Revenue from Hong Kong property sales at Li Ka-shing\u2019s CK Asset Holdings Ltd. slumped by more than 60%.<\/p>\n
The Kwoks\u2019s Sun Hung Kai Properties Ltd. slashed rents for some tenants, while the biggest landlord in the Central district said its vacancy rate rose to 5% at the end of June from 2.9% in December.<\/p>\n
With Covid-19 preventing tourists from coming and the national security law threatening Hong Kong\u2019s status as a financial hub, the fortune that property moguls have amassed is suddenly shrinking. To make matters worse for them, the city\u2019s financial secretary urged landlords to offer tenants concessions on rents \u2014\u00a0some of the world\u2019s highest \u2014\u00a0to ride out a crisis that a resurgence of coronavirus cases is now taking to unchartered territory.<\/p>\n
While seven of Hong Kong\u2019s real estate tycoons still sit atop $107 billion combined, the impact of the recent events is clear: They\u2019ve lost $7.7 billion this year as their properties got hit by the double whammy of political unrest and a virus outbreak that no one could have predicted. An index tracking the city\u2019s developers has plunged 21%, more than any other industry group.<\/p>\n
Wheelock & Co., which controls Wharf REIC, CK Asset, Sun Hung Kai, Henderson Land Development Co. and New World Development Co. didn\u2019t respond to requests for comment.<\/p>\n
Some developers that have yet to report their first-half earnings have warned about potentially disappointing results. One of them is Merlin Swire\u2019s Swire Properties Ltd., which said in June the company will post a \u201csubstantial\u201d profit drop and a loss of about HK$2.6 billion on the revaluation of investment properties, according to a company filing.<\/p>\n
Overall, the city\u2019s vacancy rate for office buildings is at the highest in more than a decade as foreign firms scale back their operations in Hong Kong. Mall traffic is down by more than a third from a year ago amid stricter social-distancing measures to contain the spread of Covid-19.<\/p>\n
But the coronavirus was only the latest blow. The malaise all started last year, when pro-democracy demonstrations erupted to contest a proposed extradition law. While the bill was later withdrawn, the protests persisted with more demands, including direct elections of the city\u2019s leader. The national security legislation was Beijing\u2019s response.<\/p>\n
Hong Kong\u2019s real estate tycoons have largely rallied behind the security law. A developer association representing firms including CK Asset and Lee Shau Kee\u2019s Henderson Land said it supported it because it would guarantee stability and prosperity in the city. The families behind Swire, Galaxy Entertainment Group Ltd. and Jardine Matheson Holdings Ltd. have also issued similar endorsements.<\/p>\n
\u201cHong Kong\u2019s property tycoons are subject to the state-security law as much as anyone else,\u201d said Steve Tsang, director of the SOAS China Institute at the University of London\u2019s School of Oriental and African Studies. \u201cAnd since the law is implicitly a \u2018you\u2019re with us or against us\u2019 imposition, tycoons who want to stay in Hong Kong and make money are required to declare they support the law.\u201d<\/p>\n
Read More: $140 Billion at Stake for H.K. Tycoons Backing Security Law<\/p>\n
Hang Lung Properties Ltd. Chairman Ronnie Chan said the bill has brought back some stability to Hong Kong.<\/p>\n
\u201cThe national-security law is to restore the \u2018one country, two systems\u2019 framework, and I just don\u2019t see any other way,\u201d Chan said in an interview with Bloomberg Television on July 31. \u201cThose people who were demonstrating against the Hong Kong and Beijing governments, they asked for it.\u201d<\/p>\n
But to some, the real estate moguls helped trigger the protests that led to the national-security law. Chinese state media have argued that Hong Kong\u2019s expensive homes were a reason for last year\u2019s social unrest and lambasted the tycoons for propping up property prices. That pushed developers including New World Development of the Cheng family and Henderson Land to donate land plots to charity.<\/p>\n
Read More: Hong Kong Gets Real on Property Prices With a Nudge From Beijing<\/p>\n
Minimizing both political and economic risks could be an arduous task for the tycoons. While they strive to limit the damage, it might take some time, according to Patrick Wong, a senior analyst at Bloomberg Intelligence who expects prime-office rents to fall between 15% and 20% this year.<\/p>\n
\u201cHeightened political instability, and a recent increase in Covid-19 infections could threaten to cast a pall over the city\u2019s economic growth, which may further weaken office leasing demand in major districts in the second half,\u201d he wrote in a July 24 note.<\/p>\n
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