National security warning now a part of Hong Kong land sales

By Kathleen Magramo, CNN

Hong Kong real estate is the most expensive in the world, but it wasn’t eye watering prices that took investors by surprise this week.

A public tender spelling out the details of a government land sale in the city’s Kowloon district states that prospective buyers can be disqualified if they or their parent firms engage in activities that “endanger national security” or affect public order.

When the Hong Kong Economic Times, a Chinese-language newspaper, first reported the insertion of the national security clause on Monday, the Hang Seng Property Index, which tracks property companies listed on the Hong Kong Stock Exchange, tumbled as much as 4.9% before closing 3% lower. The index recovered some of those losses the next day.

The wide-ranging security legislation — which criminalizes secession, subversion, terrorist activities and collusion with foreign forces — was introduced in 2020 and carries with it a maximum sentence of life imprisonment.

It has been widely criticized by foreign governments and human rights organizations.

Hong Kong authorities have repeatedly claimed the law has restored order and stability after the city’s 2019 anti-government, pro-democracy protests.

Speaking at a press conference on Tuesday, Hong Kong leader John Lee refuted the idea that the addition of the clause to the government’s tender documents would have an impact on investor confidence. Lee said the legal provision is “an obvious thing” for Hong Kong to add to safeguard national security.

The Hong Kong government owns almost all of the city’s land. One of its biggest sources of revenue is land sales, with winning bids usually coming from local tycoons or mainland Chinese developers.

Shareholder activist David Webb told CNN the insertion of a national security clause reinforces the idea that bidders shouldn’t cross any red lines the government perceives as threats to national interests.

“If the approach to land tenders is extended to other sectors where foreign companies are more likely to participate, then it could damage our reputation as an open economy,” he said.

He gave examples of whether asset management companies shorting Hong Kong stocks or criticizing government policy could be construed as threats to national interests.

Chinese and Hong Kong leaders have assured the public the law would target only a minority of individuals and not diminish freedoms in the semi-autonomous city.

Making waves

The national security provisions in the land sale tender made waves this week, but they’re not new, according to Hong Kong’s Development Bureau. They had been included in official tenders and some other property-related documents starting last August, the bureau told CNN in an emailed statement.

“Safeguarding national security is the shared responsibility of the entire Hong Kong society,” it said. “For law-abiding bidders, the relevant terms should not affect their willingness to bid, and we are not worried that the terms will affect the government’s land sales.”

The bureau added that the sale of a site near the former airport, which included the same national security clause, had attracted six bidders and was successfully concluded at the end of 2022.

Donald Choi, chief executive of property giant Chinachem Group, told CNN that the clause had been included in tender documents since late last year, adding: “I don’t think there was any attention paid or reporting at that time.”

He brushed off fears that property developers may be affected, saying that the sector “always made sure” that illegal activities would not be carried out on their premises.

The overall impact of the clause is minimal, according to Hannah Jeong, head of valuation and advisory services at property consultancy Colliers. Developers and investors bidding on land sales are not normally involved in activities that violate the national security law, she said.

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