A series of white, three-story apartment buildings surrounded by palm trees and a gate.
Reform-minded leaders in the New Territories say the policy needs to change. The policy is often held up as an example of how things work in the New Territories, a part of the city’s territory that was not won by the British Empire from Imperial China after the Opium Wars but leased in 1898. Erin Hale

Developers are profiting off of illegal land rights sales through the Small House Policy, a 1970s rule that lets villagers build small houses with few restrictions.

The cluster of buildings that make up the gated Elegant Park apartment complex in Yuen Long are typical of the low-rise developments found across Hong Kong’s New Territories, the kind of place that many residents may choose to live if they are searching of cheaper rent or more open space.

While many associate Hong Kong with towering skyscrapers of Central, half of the city lives in the New Territories, 368 square miles of planned “new towns,” outlying island communities, country parks, and former villages now sprawling into abandoned agricultural land.

Situated across from one such village and among a number of new villa developments, Elegant Park is innocuous in almost every way with its tiled exterior walls and small balconies—except that it has been identified as a possible case of real estate collusion between “indigenous” villagers and developers, according to public interest group Liber Research Community.

Liber estimates that as many as 10,000 houses in the New Territories are cases of such collusion, relying upon a rural housing policy from the 1970s that allows male “indigenous” villagers—descended from the region’s original inhabitants—to build a “small house” without paying a government premium or submitting construction plans.

Many villagers illegally sell their rights to developers, however, who in turn build vastly different homes than intended by the policy to improve rural living conditions.

“A quarter of [small houses] at least have been built not for their [personal] use but for them to make a profit,” said Liber Research’s Brian Wong. “Most of the profit does not go into the village’s purse. Most is taken by the developers and also the construction contractors controlled by the village elders.”

The Small House Policy has proven, however, surprisingly difficult to challenge thanks to Hong Kong’s chronic affordable housing shortage and powerful developers.

It is also quite difficult to prove that it has been misused as residents must pay a fee to obtain land records. But Liber has pieced together a map of suspected illegal houses to show the Hong Kong government and other interests groups the extent of illegal developments.

Recently, several legal cases against small house developers have shed some light on the shadowy industry. In 2015, 11 indigenous villagers were found guilty of running a “small house” scam where they illegally sold their rights to a developer for between $16,000 and $31,000, according to the South China Morning Post.

Prices can go up to as much as $127,000 in high-demand areas like Yuen Long, Sheung Shui and Tai Po, according to Wong, with developers saving tens of thousands of dollars in fees to the government.

In 2017, a developer was charged by Hong Kong’s Independent Commission Against Corruption for offering over $76,000 in bribes to two village leaders to help indigenous residents sell their small house rights.

“We have hundreds of these cases every year and it is everywhere,” said Eddie Chu, who represents the New Territories West in Hong Kong’s semi-democratic legislative council and has received death threats for his attempts to clean up rural politics.

In response to emailed questions, the Hong Kong Lands Department said in a statement that obtaining a small house by “deception” is against the law. It also said it will refer any suspected cases of fraud to law enforcement.

Chu and other reform-minded leaders in the New Territories say the policy needs to change. The policy is often held up as an example of how things work in the New Territories, a part of the city’s territory that was not won by the British Empire from Imperial China after the Opium Wars but leased in 1898.

Its clan-based communities were left to mostly rule themselves for decades by the former colonial government after hundreds of villagers, unhappy with the new arrangement, were killed after attacking British troops. In the 1920s villagers formed the representative group known as the Heung Yee Kuk to improve conditions in the New Territories, which today holds enormous sway over rural policies.

While the Hong Kong government has taken a more active role in the New Territories in recent decades, in many ways it still rules itselfwith historic family and village ties meaning more in some cases than the government. Such relationships can also leave residents open to intimidation and threats from village leaders, upon whom they rely for parking, garbage collection and even road access, according to Chu and others.

This kind of petty corruption stands in contrast to Hong Kong’s international reputation for strong rule of law, a point of pride for many residents when they compare the city to other parts of Asia. Hong Kong also ranks 13th in the world, tied with Australia and Iceland, in Transparency International’s 2017 Corruption Perception Index.

Times may be changing though, with the Small House Policy currently under judicial review in what could become a landmark case for Hong Kong.

Opponents of the Small House Policy say it is discriminatory against women and non-indigenous residents, including villagers whose families have been there for decades but missed the 1898 cutoff. The Heung Yee Kuk, by contrast, has defended it as an indigenous right, which are protected under local law.

The Heung Yee Kuk did not reply to email requests for comment by time of publication. Its chairman, Kenneth Lau, did not also not reply to emailed requests. Lau has publicly said that the “New Territories indigenous people are constantly being provoked and attacked by people with ulterior motives,” particularly with legal challenges to the Small House Policy, according to Hong Kong Free Press.

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