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.

[It is estimated 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.

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While the Hong Kong government has taken a more active role in the New Territories in recent decades, in many ways it still rules itself—with 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...

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.

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