Crackdown on illegal structures set to chill demand, recovery in Hong Kong’s luxury homes market, analysts say

The upscale segment, which makes up 2 per cent of property transaction volume, could get a short-term chill after adverse publicity: Midland Realty

Other negative factors, including ‘higher for longer’ local interest rates, are more likely to hobble the market, Knight Frank says

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Workers made emergency repairs to the slope at the Redhill Peninsula luxury estate in Tai Tam on September 16. Photo: Dickson Lee

Published: 2:00pm, 24 Sep 2023Updated: 4:16pm, 24 Sep 2023

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.

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