Real estate, alternative real assets and other diversions

Ding Dong: Why the bells of Hong Kong’s small house policy should knell farewell An assessment of land rights in Hong Kong: exploring the implications of the small house policy

The Analyst

The rush of investments into real estate in Hong Kong throughout the past century has led to extensive urbanisation. In December 1972, following an era of rapid new-town development in the previously neglected New Territories, the government implemented the Small House Policy as a temporary measure to raise the standard of living of villagers indigenous to these New Territories. The Small House Policy allows any indigenous villager to apply for building a three-storey house in his village. According to a government-issued pamphlet, an ‘indigenous villager’ is “a male person at least 18 years old who is descended through the male line from a resident in 1898 of a recognised village”. This right is non-transferable, and it is illegal to sell the right. The nature of the policy is to recognise and institutionalise villagers’ customary rights to build houses for better living conditions.

The villager has to pay for the construction of the house, and it has been argued that the policy helps to retain the traditional character of rural villages. However, there are many issues with the Small House Policy which far outweigh its benefits. These include problems related to the unsustainable nature of the policy itself, the discriminatory nature of the policy, and the abuse of the policy by indigenous villagers.

The unsustainable nature of the policy stems from the fact that demand for small houses is unlimited, because it is tied to a right rather than a need — every male born to an indigenous family has the right, which only gets more lucrative as property prices rise. The right is also tied to Hong Kong permanent residency, so even villagers who move overseas and retain their permanent residency can apply for a house, as can their male children. This exacerbates the basic economic problem — unlimited demand and limited supply. The policy also encourages inefficient land use by promoting the construction of low-density housing.

In addition, the Small House Policy is discriminatory towards female indigenous villagers, as well as to non-indigenous Hong Kong people (who comprise the majority of Hong Kong society). The right of a male indigenous villager in his lifetime to apply for building a three-storey house in his village is referred to as a ding right (ding meaning an adult male). Referring to Article 1 of the Hong Kong Bill of Rights Ordinance, there is no doubt that the policy violates the human rights principle of sexual equality. The United Nations Committee on Economic, Social and Cultural Rights pointed out in 1994 that the policy is discriminatory towards women. Part 2 Schedule 5 of the SDO, passed two years later in 1996, exempts the policy from its provisions.

There is the possibility of a female villager asking the Court to declare the refusal of her small house application to be illegal on the grounds of sex discrimination. If such a claim were to succeed, it would exacerbate the sustainability problems generated by the policy. Therefore, if the principle of sexual equality was applied and the entitlement to a small house under the policy was extended to female villagers, the number of applicants could potentially double immediately, increasing the demand for government land on an unprecedented scale.

Furthermore, the possession of ding rights is abused by villagers, who have profited by illegally selling their ding rights. Collusion between indigenous villagers and property developers is more common now than ever before due to a combination of factors: the increasing scarcity of land, the rising cost of building small houses, and the profit incentive provided by the developers. Furthermore, a huge number of villagers claim their ding rights while living overseas, with the sole purpose of selling them for profit. The collaboration between indigenous villagers and developers is illegal; this means there is no ‘standard’ price for the sale of a ding right. The market for dingrights can be used for money laundering purposes. The market is also rife with misinformation; the consultation procedure between developers and villagers is not transparent, creating a problem of asymmetric information.

The Analyst

About Nayan Vinod Thakurani

Nayan Vinod Thakurani

Nayan is a second-year land economist at the University of Cambridge. Having grown up in Hong Kong and Shanghai, he has been lucky enough to witness the spectacular pace of the region’s growth. Nayan’s primary academic interests include behavioural economics, public law, cities, and sustainable development. He is based in Cambridge and Singapore.

Articles by Nayan Vinod Thakurani

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