Hong Kong Takes On Rich-Gone-Rogue In Illegal Building Crackdown

(Bloomberg Businessweek) -- In a September storm that unleashed Hong Kong’s heaviest rainfall in more than a century, tons of dirt, rocks and debris tumbled into the sea below Redhill Peninsula, a cluster of $10 million-plus modernist town homes on the south side of the island. The landslide left a scar on the hillside, exposing unauthorized basements excavated beneath the foundations of several houses. Government inspectors dispatched to the exclusive enclave soon discovered 48 properties with illegal structures, and 22 of those encroach on city-owned land..John Lee, the city’s chief executive, has pledged to prosecute Redhill homeowners who broke the rules and bill them for any repairs. And the administration is considering a citywide survey of houses built on slopes to identify further violations, according to people familiar with the matter, who asked not to be identified discussing official business. “The government is serious about the problem of illegal structures,” Lee told reporters a week after the incident..Unauthorized construction has long been an issue in Hong Kong, but successive administrations have done little to tackle the problem. Lee’s stern response surprised industry insiders, giving rise to speculation that homeowners may finally be forced to adhere to the rules. The affair “rings an alarm for the market,” says Hannah Jeong of brokerage Colliers International..Tackling the issue will be difficult given how frequently the rules are flouted. From kitchen modifications to entire basements, unauthorized structures are endemic in Hong Kong. That’s in part because even minor changes are technically illegal, but major construction is common. Local think tank Liber Research Community also found that more than 170 luxury houses across the city occupy government land without permission, based on a study of official records. The city’s “unique environment and relatively relaxed enforcement of building rules in the past have turned illegal structures into a habit, a culture,” says Vincent Ho, former president of the Hong Kong Institute of Surveyors..A 2014 report by the city’s ombudsman criticized officials for delays of a year or more in handling unauthorized building on properties owned by well-known public figures. And the watchdog this past February revealed that more than a third of orders mandating changes to or removal of unauthorized construction at houses in the territory’s villages were never acted on. “Enforcement against illegal structures is still largely limited to those that can be seen by the naked eye,” while authorities usually rely on tipoffs to find illegal basements, says Vincent Ng, a former president of the Hong Kong Institute of Architects..Because of the high price of land in the city, developers typically fill every square foot they’re permitted to use and build as much volume as the rules allow, making it difficult for subsequent owners to expand or add features such as an enclosed roof terrace or an extension to the kitchen or bedroom. Even if there is space, the approval process is long and costly. And many houses on the city’s hills sit atop concrete platforms dug into the slope, making it relatively easy to excavate underneath to build an illegal basement, Ng says..The scale of the issue was highlighted during the chief executive race in 2012, when front-runner Henry Tang was found to have an unauthorized 2,200-square-foot basement in his luxury villa that included a wine cellar, gym and home cinema. The eventual winner, Leung Chun-ying, admitted that he, too, had illegal structures at his homes. And in 2018 multiple unauthorized extensions were uncovered at homes owned by Justice Secretary Teresa Cheng and her husband, including basements, rooftop structures and a swimming pool. Cheng apologized for what she called an “oversight.”.By law, fines can reach HK$400,000 ($51,000) and lead to two years’ imprisonment for building without prior approval, rising to HK$1 million and three years if the works cause or are considered likely to cause harm to people or property. But in practice the penalties are often laughably small. Cheng’s husband was fined HK$20,000 for building the pool without approval, and Tang’s wife was given a fine of HK$110,000..Since the Redhill landslide, banks have tightened their rules, now requiring the person assessing the value of a house to visit it in person rather than to rely on photos, the practice in the past, according to Colliers. And the brokerage says lenders sometimes even send their own inspectors to verify outside evaluators’ conclusions..The landslide deepened a slump in prices at Redhill amid a broader downturn in the property market. A 3,000-square-foot garden house in the three-decade-old development sold in late September for about HK$60 million, half what the seller paid for it six years ago, according to local media. And in November, a 3,500-square-foot house with a garden rented for HK$90,000 per month, 25% below the asking price..Those ordered to remove structures at Redhill appear to include various members of the financial elite. Government records show that one house was bought in 2011 for HK$73 million by an Anthony Steains, the name of a former senior managing director at Blackstone Group Asia Ltd. Another house is owned by a company with a director called Johnny Chan Kok-chung—the name of the chief investment officer at government incubator Cyberport. Neither man responded to requests for comment..Cracking down on property abuses by the elite is an easy target for Lee, a former policeman who’s taken a more populist approach than his predecessors. In September he pushed ahead with plans to take over part of an exclusive golf course to build public housing, despite vociferous complaints from wealthy members of the club that owned it..Less certain is how much he will follow through on his threat to rein in illegal construction, as politicians in the city often fail to follow through on pledged crackdowns, particularly when it comes to the elite, says Liu Dongshu, an assistant professor at City University of Hong Kong. “Sometimes we find authorities taking stern action on these irregular events to ‘prove’ that the public still has a voice,” Liu says..Advocates of stronger policies against unauthorized structures say global warming, and the increasingly intense storms it spawns, will make incidents such as the Redhill landslide more common. And that, says Brian Wong of think tank Liber, will force the government to take the problem more seriously. “Because of climate change, these hundreds of structures cannot be dealt with on a case-by-case basis anymore,” Wong says. “Could this be a chance for a breakthrough?”.(Adds prospect of citywide survey in second paragraph.).More stories like this are available on bloomberg.com.©2023 Bloomberg L.P.

Hong Kong Takes On Rich-Gone-Rogue In Illegal Building Crackdown

Property owners fret that the government will finally get serious about fighting illicit construction.

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