Hong Kong's Independent Commission Against Corruption (ICAC) arrested Raymond and Thomas Kwok in the agency's biggest investigation since it was set up in 1974, to root out what was seen as widespread corruption in the government and police.
Rafael Hui, a former No.2 official in the government, was also arrested, according to media reports. Mr Hui resigned as an independent director of insurer AIA Group late on Thursday.
The arrests yesterday came just days after Hong Kong elected Beijing-loyalist Leung Chun-ying as its next leader, pledging land for cheaper public housing.
Soaring property prices, the most expensive in the world, have stirred public discontent in Hong Kong. House prices almost doubled in the five years to the end of 2011, according to real estate broker Knight Frank.
"This is not good for the image of Hong Kong, which used to have a high reputation for integrity," said Joseph Wong, a former senior government official and colleague of Mr Hui. The impression is that government policies tend to favour the rich tycoons, particularly rich property developers. These sort of cases will only add to the suspicions."
The two Kwok brothers and Mr Hui were released late on Thursday but were expected to return for more questioning, according to a source familiar with the matter.
Local media reports said the brothers were still at a luxury compound in Deepwater Bay on the south side of Hong Kong today.
The Kwoks are worth $18.3bn, according to Forbes magazine, the second-biggest family fortune in Hong Kong after Asia's richest man, Li Ka-shing, founder of rival developer Cheung Kong.
Shares in Sun Hung Kai slumped more than 15pc to 15-week lows when they resumed trading earlier today. The company owns some of the former British colony's largest properties, including its tallest building, the International Commerce Centre that houses Morgan Stanley and the Ritz Carlton.
Sun Hung Kai said the Kwoks would continue with their duties as chairmen and managing directors, and normal business operations would not be affected.
In the past two weeks, Sun Hung Kai has also disclosed that Thomas Chan Kui-yuen, in charge of project planning and land acquisitions, had been arrested for suspected bribery, and Chan Kai-ming, executive director of architectural and engineering services, had died, peacefully - meaning of the company's seven executive board members, three have been arrested, and one has died.
Mr Hui, who, according to the Hong Kong Jockey Club website, has owned eight racehorses - two co-owned with Henry Tang, a loser in this month's leadership election - has been a long time adviser to Sun Hung Kai and has known the Kwoks since childhood.
Details of what is behind the arrests remain unclear.
The South China Morning Post reported that the ICAC was looking into suspected debts of more than HK$100m ($12.9m) linked to Mr Hui, and a related, unsecured loan of HK$50m.
The Kwok family had a public feud in 2008 that ended with elder brother Walter being ousted as chairman. Thomas and Raymond, backed by their mother, claimed Walter was mentally unfit to run the business, claims Walter has denied.
That aside, the Kwok brothers - Thomas runs the company's construction and engineering departments, while Raymond looks after legal and financial issues - have a relatively low media profile.
Both are devout Christians, with Thomas the driving force behind a Noah's Ark replica theme park which opened in 2009.
A former company employee who didn't want to be named, said he was "very surprised and very sad" at the arrests. "They are men of integrity. Thomas would always repeat the company's mission - Building Homes with Heart - during meetings and ask staff to treat clients with a true heart," he said.
Over the past four decades, Sun Hung Kai, listed in 1972, has built some of Hong Kong's most expensive property, from luxury hilltop apartment blocks and harbour-front skyscrapers to landmark office buildings.
The company's net profit has soared to HK$48bn ($6.18bn) in the year to last June from $10.4bn two years earlier.