Hong Kong’s John Lee Shrugs Off Investors’ Concerns Over National Security Terms In Land Sales

Hong Kong Chief Executive John Lee on Tuesday denied that adding national security clauses to the government’s land sale documents would have an impact on investors’ confidence, saying that the legal provision is “an obvious thing” for Hong Kong to do to safeguard national security.

The government has recently added a warning to its land sale and short-term lease tender documents which states that potential buyers could be disqualified if they or their parent companies engage in activities that endanger national safety or affect public order.

The news, first reported by local media, contributed to the Hang Seng Property Index dropping as much as 4.9% on Monday, briefly touching a six-week low. The index, which tracks the shares of 10 property companies, was also hit by a $2.4 billion cash call from Asia’s largest real estate investment trust Link REIT.

“The introduction of national security factors in our sale of lands is an obvious thing that is in accordance with our responsibility in protecting national security,” Lee said in a media briefing. “Such a provision has been in place for quite a while, and there have been land sales since its introduction. So this factor is an actual factor that I think has no relevance at all to any decision by any businesses who are interested in bidding for sales of land.”

Moody’s Analytics economist Heron Lim, however, said the insertion of the national security clauses in land sale agreements raises uncertainties to Hong Kong’s real estate sector, which could make the relatively safe assets less appealing to investors.

“The big unknown is whether the new policy will be seen and used as a retaliation tool or is a failsafe in cases of egregious national security breaches,” Lim said in a written response. “If the former, international businesses, particularly western investors, are likely to assess it as higher risk and may not come in for joint bids with local developers.”

Hong Kong officials began to include the national security clause as part of its terms and conditions of land sales in November last year, according to local media.

The first land sale project that included the national security terms was for a site at Kai Tak. Li Ka-shing’s CK Asset Holdings beat out five other bidders in late December to win the parcel for a price that was well below market expectations.

In 2020, Beijing imposed a sweeping national security law on Hong Kong, which punishes acts of secession, subversion, terrorism and collusion with foreign groups with up to life in prison. Since it was implemented, the city’s police force has arrested scores of opposition lawmakers, activists and journalists.

The legislation has been heavily criticized by Western governments for undermining Hong Kong’s freedoms and its rule of law. Meanwhile, the city’s officials continue to argue that the law helped to restore order following mass anti-government protests, insisting that it only targets “an extremely small minority of offenders.”