HONG Kong’s leader defended the inclusion of a national security clause into the city’s land sales.

News that the government had added security law requirements to land auctions helped roil shares of major property developers on Monday (Feb 13), with New World Development sinking almost 7 per cent. A buyer can be disqualified if they or their parent firms engage in activities that endanger national security or affect public order, according to official tender documents.

“The introduction of national security factors in our sale of land is an obvious thing that is in accordance with our responsibility in protecting national security,” John Lee said at a weekly press briefing on Tuesday. The inclusion “has no relevance at all to any decision by any businesses who are interested in bidding”, he said.

The move underscores the risks for the tycoons who control Hong Kong’s biggest developers. The extra scrutiny comes as property firms grapple with slumping home prices, which tumbled 16 per cent last year. Land premium and stamp duties account for almost a third of the government’s total annual income.

“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,” said Heron Lim, an economist at Moody’s Analytics. “If the former, businesses are likely to assess it as higher risk.”

Beijing imposed the security law on the city in 2020 to prevent dissent in the wake of often-violent protests the year before. Land has played a key role in Hong Kong ever since the territory was colonised in the 1840s, with the government owning virtually all of it.

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“Businesses will need assurances,” Lim said. “The Hong Kong government will need further explanations and clarity to indicate how the clauses will be put to work in practice.”

A gauge of property stocks listed in the city was 1 per cent higher as of 10.12 am local time, after slumping 3 per cent on Monday. Sentiment had been exacerbated by Link Reit’s plan to conduct a US$2.5 billion rights offering.

In a sign of weak interest for Hong Kong property, MTR rejected bids for a project on Lantau island on Monday and will retender in due course. The railway operator received just three bids, the fewest for its housing projects since 2014, according to the Hong Kong Economic Journal. BLOOMBERG