A government crackdown on illegal structures in Hong Kong’s luxury homes is giving the high-end property market a chill, adding to financial headwinds that could derail a revival this year from a four-year low, analysts said.

Buying decisions could suffer in the short term, according to Midland Realty, after Typhoon Saola and record rainfall this month wreaked havoc in the city, damaging some luxury residential homes in Tai Tam and Tuen Mun, exposing illegal structures and encroachments on government land.

An inspection by Hong Kong government officials on Friday suspected 70 of the 85 homes at the Redhill Peninsula luxury estate in Tai Tam to have illegal structures, and 40 homes could have encroached on government land.

The government has pledged to clamp down on such shenanigans as public criticism mounted about ineffective policies and lax enforcement over the years. The scrutiny, as well as fresh caution on “higher for longer” local financing costs, may also pressure prices. One in four homes across the city had illegal modifications, according to data compiled by the Buildings Department.

“In the short-term we expect a softening of demand as buyers will become cautious and need more time to check for any unauthorised additions” following the adverse publicity, said Buggle Lau Kai-fai, chief strategist at Midland Realty. “If you are paying a high price for a property, you want to make sure that there are no illegal structures.”

Buggle Lau of Midland Realty sees a short-term impact from recent adverse publicity involving illegal home renovations. Photo: David Wong

Hong Kong’s luxury homes, a niche segment accounting for about 2 per cent of the local market, has improved this year, according to data compiled by consultancy Knight Frank. Volume shrank by more than 50 per cent in 2022 to the lowest since 2019, according to the consultancy.


Some 135 ultra-luxury units, those priced above US$10 million, changed hands this year to mark a 35 per cent jump from a year earlier, the consultancy said. There were 460 deals involving homes priced above US$5 million, a 31 per cent increase from the volume in January-to-September last year.


Hong Kong issues its longest black rainstorm alert ever as city pounded by sudden torrential rain

Hong Kong issues its longest black rainstorm alert ever as city pounded by sudden torrential rain

Authorities had initially found two houses in the Redhill Peninsula estate with illegal structures, while another upmarket home in Tuen Mun had also flouted building rules. The ensuing crackdown will not be limited to the affected estate as inspectors widen their target to seaside homes built along slopes, analysts said.

To be sure, the market segment could still prosper on potential government incentives, as former administration officials called for easing measures for homes priced above HK$30 million.

Former Financial Secretary Henry Tang recently proposed scrapping of the double stamp duty on homes worth at least HK$30 million, saying it could boost transactions of luxury homes.


Martin Wong, director and head of research and consultancy for Greater China at Knight Frank, said the crackdown is unlikely to hurt market sentiment. Instead, high funding costs and a host of negative factors, are more likely to hobble the market, he added.

On Tang’s proposal to remove the double stamp duty, Wong said the move would stimulate transactions in the longer term.


“The market may not see an obvious turnaround in the short term just because of such stamp duty removal,” he said.

The HKMA last week maintained its base rate at 5.75 per cent while leading commercial banks kept their prime rates unchanged, following a pause in the Federal Reserve’s monetary tightening drive. Still, it cautioned “the Hong Kong dollar interbank rates might remain high for some time”.

Hong Kong luxury home market awaits return of affluent mainland Chinese buyers

“For owners whose homes have illegal structures, they should rectify those encroachments as soon as possible,” said Vincent Cheung, managing director of Vincorn Consulting and Appraisal. “They can appoint surveyors and engineers to check the site boundaries and any illegal structures.”


Under the city’s law, owners face up to one year in jail and HK$200,000 (US$25,567) in fines for such offences. Given the legal and financial costs, potential buyers will be more thorough in their evaluation, especially in second-hand units that make up more than half of the high-end transactions, Lau said.

This suggests weaker bargaining power for luxury homeowners looking to put their existing property on the market, said Cheung. Renovations are typically considered as value-enhancing acts, but this is no longer the case, he added.

“Previously, buyers may not have been aware of serious offences that could arise from building renovations or additions,” Cheung said. “They may consider them as a way to add space or value to the property, so that future buyers will pay a premium.”


When some structures become contentious, the property prices are likely to be discounted, he added.