Hong Kong’s property pain may soon get real

Hard line. Hong Kong’s leer is talking tough on illegal structures ubiquitous in city’s luxury houses. That ought to please Chinese President Xi Jinping and public at large who both see intolerable inequities in residential market. It raises pressure to act on issue and it means property prices in financial hub could fall a lot furr.

A bigger apartment is one of things Hong Kongers most desire, Xi noted in a speech last year marking 25th anniversary of Chinese rule in city. Yet while secondary home prices have slumped more than 20% below a 2021 peak, a modest 600-square foot apartment in Shatin – city’s most populous district – still costs close to 19 times median annual income.

Lee appears to be rolling up his sleeves and preparing to tackle 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 foundations of several houses.

A serious crackdown would first hurt 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 casce to drag down broer market too.

It will be a high-risk move for authorities. Overall, 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 pandemic. That financial contribution helps to explain why previous ministrations have mostly brushed aside issue, including after a notorious scandal in 2012 involving a top political candidate.

Yet Xi’s effort to curb speculation in property market on 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 sources for social unrest in city in 2019. Lee also may face less local resistance than in past as influence of Hong Kong’s tycoon landlords is waning. Change will be disruptive but imperative to act is growing.

Context News

Hong Kong’s Chief Executive John Lee said in his annual policy dress on Oct. 25 that next year city would propose lowering prosecution threshold as well as raising penalties relating to illegal residential structures. On Sept. 12, Lee said that government will prosecute homeowners at Redhill Peninsula, a luxury housing estate, after a landslide below several townhouses drew attention to possible illegal excavation. ministration is considering a citywide survey of houses built on slopes to identify furr violations, Bloomberg reported on Dec. 6 citing unnamed sources. Unauthorised building works involve any ditions or alterations me to interior or exterior of a property without prior approval of Building Authority.