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OPINION
Updated December 13th, 2023 at 17:20 IST
Lee says he intends to prosecute those who have built illegal structures and is considering a citywide survey of houses built on slopes.
A view shows the aftermath of a landslide beneath luxury houses in the high-end Redhill Peninsula in Tai Tam | Image:Reuters Breakingviews
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Hard line. Hong Kong’s leader is talking tough on illegal structures ubiquitous in the city’s luxury houses. That ought to please Chinese President Xi Jinping and the public at large who both see intolerable inequities in the residential market. It raises the pressure to act on the issue and it means property prices in the financial hub could fall a lot further.
A bigger apartment is one of the things Hong Kongers most desire, Xi noted in a speech last year marking the 25th anniversary of Chinese rule in the city. Yet while secondary home prices have slumped more than 20% below a 2021 peak, a modest 600-square foot apartment in Shatin – the city’s most populous district – still costs close to 19 times the median annual income.
Lee appears to be rolling up his sleeves and preparing to tackle the problem. He says he intends to prosecute those who have built illegal structures and is, according to Bloomberg, considering a citywide survey of houses built on slopes. Torrential rainfall in September led to a landslide on Redhill Peninsula, exposing multiple unauthorised basements excavated beneath the foundations of several houses.
A serious crackdown would first hurt the wealthy. Many areas like Redhill are popular simply because cavernous basements are easily built in cliff-side mansions: a zero-tolerance approach would cause luxury apartments to sink in value. Yet negative price movements could cascade to drag down the broader market too.
It will be a high-risk move for authorities. Overall, the number of property transactions this year are on track to end below 2022 figures, which represented a historic low not seen since 2013. Developers Sun Hung Kai, CK Asset and Henderson Land Development have offered steep discounts for new apartments in recent months as sentiment dips. Hong Kong’s government typically generates 20% of annual revenue from stamp duties and it has been running on a deficit since the pandemic. That financial contribution helps to explain why previous administrations have mostly brushed aside the issue, including after a notorious scandal in 2012 involving a top political candidate.
Yet Xi’s effort to curb speculation in the property market on the mainland also makes it harder for Lee to do nothing in Hong Kong, not least too because Chinese officials appear to blame inequality as one of the sources for the social unrest in the city in 2019. Lee also may face less local resistance than in the past as the influence of Hong Kong’s tycoon landlords is waning. Change will be disruptive but the imperative to act is growing.
Context News
Hong Kong’s Chief Executive John Lee said in his annual policy address on Oct. 25 that next year the city would propose lowering the prosecution threshold as well as raising penalties relating to illegal residential structures. On Sept. 12, Lee said that the government will prosecute homeowners at Redhill Peninsula, a luxury housing estate, after a landslide below several townhouses drew attention to possible illegal excavation. The administration is considering a citywide survey of houses built on slopes to identify further violations, Bloomberg reported on Dec. 6 citing unnamed sources. Unauthorised building works involve any additions or alterations made to the interior or exterior of a property without prior approval of the Building Authority.
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