A corruption case against Hong Kong's two richest property tycoons is a black mark on the city's clean image and could fuel public anger over links between government and business, analysts said.

The Asian financial hub has been gripped by the arrest of billionaire brothers Thomas and Raymond Kwok, co-chairmen of the city's largest property developer, as well as former senior government official Rafael Hui.

The Kwoks have yet to be charged with any crime but anti-graft investigators are believed to be focusing on alleged malpractices involving the developers' huge "land bank" of rural, undeveloped property, analysts said.

The case has sent shockwaves through a city that has earned a reputation as one of the world's most open and transparent markets, even as its growth has enriched a clique of tycoons who control everything from ports to telecoms.

Lyncean Holdings managing director Francis Lun said the Kwok case "reinforces the perception that there is collusion between the big developers and the government".

"This is a black eye for the civil service," the financial adviser told AFP.

The Kwoks are worth an estimated $18.3 billion and jointly chair the Sun Hung Kai Properties group, builder of many of the tallest landmarks in Hong Kong's glittering skyline.

The brothers insist they have done nothing wrong and the company has stood by them, but investors wiped almost $5 billion off Sun Hung Kai's market value the day after the arrests were made on March 29.

"There is limited disclosure on the corruption investigation, which poses a level of uncertainty as to the impact on the company," said ratings agency Moody's, which like Standard & Poor's has cut the firm's outlook to negative.

The Kwoks' Sun Hung Kai, Li Ka-shing's Cheung Kong Holdings, Cheng Yu-tung's New World Development and Lee Shau-kee's Henderson Land Development are popularly dubbed the "Big Four" developers in the city of seven million people.

As their wealth from land sales and development grew in the 1970s and 1980s, they expanded into other sectors such as utilities, hotels, telecommunications, supermarkets and restaurant chains.

"They control just about every profitable business in Hong Kong. They collect ransom from the people of Hong Kong, basically," Lun said.

Chinese University of Hong Kong political scientist Ma Ngok said the tycoons "have their hands in almost every sector" and influenced government policy to protect their interests.

"They are so dominant that if you try to do something to the housing market it won't be very meaningful," he said, referring to property prices that are among the highest in the world.

The Kwok arrests came days after a leadership vote in which a textile tycoon's son competed against a wealthy property consultant for the approval of a 1,200-member election committee packed with tycoons and their proxies.

The winner, Leung Chun-ying, has vowed to make housing more affordable for the middle and working classes without affecting price "stability".

He will replace outgoing Chief Executive Donald Tsang, who last month apologised for accepting favours from his business friends in the form of trips on luxury yachts and private jets.

The bow-tie wearing career bureaucrat, whose term expires in June after seven years as the southern Chinese city's chief, appeared to hold back tears as he defended the "system" against allegations of widespread collusion.

Like Sun Hung Kai, other major developers in Hong Kong also hold land banks of undeveloped property, and analysts said investors are jittery over whether the Independent Commission Against Corruption (ICAC) will turn to them next.

Critics have long complained that Hong Kong's big developers hold onto undeveloped land leased from the government, waiting years or even decades for favourable conditions, while most of the public is priced out of the market.

But analysts said that Hong Kong was served well by the fact that two of Asia's richest tycoons have drawn the attention of the ICAC, which was established in 1974 under British rule to clean up rampant official graft.

The Kwok case was a "good thing", political scientist Ma said.

"It means they are not above the law. It means we still have a clean system," he told AFP.