One country, two China property crises for tycoons
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Updates to add chart and hyperlinks.
By Chan Ka Sing
HONG KONG, Nov 20 (Reuters Breakingviews) -Hong Kong property tycoons are embracing the 'one country, two systems' principle. In the mainland, developers are being forced by Beijing to deliver presold homes in a timely manner. In Hong Kong, developers led by Li Ka-shing's CK Asset 1113.HK are threatening to chase down buyers who forfeit purchases. Backed by mega-rich families, the finance hub’s property giants can remain in decent shape while their onshore counterparts rot.
Both markets are slumping. Most of China’s largest developers have defaulted. Per state media reports, the family of Country Garden 2007.HK Chair Yang Huiyan, once Asia’s richest woman according to the Bloomberg Billionaires Index, has resorted to selling her private jets to raise funds for the company. The embattled developer has submitted a proposal to restructure $11 billion worth of offshore debt, Reuters reported this week, citing sources.
In Hong Kong, home prices have fallen some 25% from their 2021 peak. Yet investors can count on less desperate bailouts from sector's tycoons. Lee Shau-kee has made shareholder loans worth nearly $8 billion to his listed flagship Henderson Land Development 0012.HK, for example.Rival New World Development 0017.HK said in September it is in talks to offload more assets to its unlisted parent to cut debt.
While Hong Kong tycoons prospered for decades in the city’s property-driven economy, such enduring fortune now looks off- limits for their peers in the People's Republic where Beijing is steering radical policy changes to wean the $17 trillion economy off a heavy dependence on real estate.
That's ironic. China borrowed heavily from Hong Kong’s experience in the 1990s, including the presale model on apartments. Such practice made sense when the country was undergoing rapid urbanisation. Now Beijing wants to shift away from presales altogether, even if it causes developers more pain in the short term.
Over in Hong Kong, people are anticipating a further slump in prices: The number of buyers who forfeited their deposits on presold apartments more than doubled year-on-year to 349 cases in the nine months to September, per data from consultancy Centaline. Cancellations are rare, because developers warn they might sue defaulting buyers to recover the difference between the original sale price and what they can secure on a forfeit sale.
Land sale income often accounts for one-third of the Hong Kong government's fiscal income. The city could borrow a trick from China, which recently unveiled a raft of measures to stabalise home prices, and take on bolder reforms to skew the economy away from bricks and mortars.
CONTEXT NEWS
The number of homebuyers who have forfeited their deposits has more than doubled year-on-year to 349 cases in the nine months to September, per data from consultancy Centaline.
Hong Kong developer CK Asset warned in May it would sue defaulting buyers to recover the price differences.
Graphic: Henderson Land is faring better than Country Garden https://reut.rs/3Zgmdyw
Editing by Una Galani and Aditya Srivastav
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