One country, two China property crises for tycoons

Henderson Land Development Co

20/11/2024 01:45

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    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.

 (Editing by Una Galani and Aditya Srivastav)
 ((For previous columns by the author, Reuters customers can
click on  CHAN/  
KaSing.Chan@thomsonreuters.com))