HONG KONG (REUTERS) – Hong Kong’s government says it needs to build billions of dollars’ worth of artificial islands to give the city’s glittering skyline room to grow, but critics say developers are hoarding unused land that could solve the problem.

Hong Kong’s leader Carrie Lam estimates the 1,111 sq km city needs another 12 sq km, and has proposed creating new land offshore.

Her plan, which would cost up to US$64 billion (S$86.45 billion), could exhaust half of the financial hub’s sizeable financial reserves.

But major developers, including Henderson Land, New World Development and Sun Hung Kai Properties , are sitting on “no less than 1,000 hectares” of agricultural land, according to government estimates.

None of the three developers would clarify exactly how much rural land they hold, either directly or through shell companies. Two declined to comment on their plans for it or why they were sitting on the land.

Sun Hung Kai said it has been working to convert its agricultural land for “appropriate developments to help address the shortage of developable land and housing in Hong Kong”, but offered no examples.

Holding onto the land until it is rezoned for private development is potentially lucrative. Property prices have more than doubled in the last decade, and many city centre private flats sell for at least US$25,000 per sq ft.

Augustine Ng, a former senior government town planning official for nearly three decades, is sceptical the city and developers are doing all they can.

He argues that taking over agricultural land held by developers using a powerful colonial-era ordinance would meet the city’s land needs many times over.

“In a way, the developers are holding Hong Kong for ransom,” he said.

Ng, who recently wrote a detailed proposal on solving Hong Kong’s land woes, says developers conceal their acquisitions through shell companies and middlemen, then sit on the land, betting prices will rise.

“There’s no way you can identify who owns the land… This is a business secret,” he said. “I would not be surprised if they each own 1,000 hectares.”

Groups including Liber Research, an NGO advocating equitable land usage, have investigated hundreds of such shell companies, finding some shareholders to be senior staff of big developers.

The government gave no direct response to a Reuters inquiry on whether it had looked into developers’ rural land holdings.

A Task Force on Land Supply, including senior officials, academics and experts, has spent more than a year analysing how to resolve the land crunch but has only a “rough estimate” of such land banks.

“We do have a shortage of land,” task force chairman Stanley Wong said. “And this has (been) jeopardising the development of Hong Kong in the past 10 or 15 years.” The task force concluded in a recent report that far more than 1,200ha were needed. It supported the artificial islands, converting former industrial “brown field” sites in Hong Kong’s less-developed northern regions, called the New Territories, and developing part of a golf course that is home to rare trees and wildlife.

Yet it was lukewarm on taking developers’ rural holdings, given the risk of protracted legal disputes and protests.

Instead it strongly endorsed teaming up with developers, who would help build public housing in exchange for development rights on rural sites, while the government would provide costly infrastructure like roads.

The proposal has stoked accusations that the authorities are ceding power and profits to developers, according to some politicians, land rights groups and experts. The result, they say, would be lower public housing density and more private flats.

Hong Kong provides public housing to more than two million people for an average monthly rent of US$230 per household.

Before Hong Kong returned from British to Chinese rule in 1997, the colonial administration often deployed a powerful “land resumption” ordinance to take property for public use, offering compensation to landowners.

In this manner, the city built mini metropolises called “new towns” in the New Territories that have housed millions, many in public flats.

The Development Bureau told Reuters in an e-mail that it planned to take back about 500ha of private land for a “public purpose” in the coming years.

Since 1997, however, new towns have all but stalled amid a freeze on public housing and a scaling back of land supplies – both meant to prop up real estate prices.

Those policies made Hong Kong homes among the world’s most expensive. In a city of 7.4 million, the average wait time for public housing is 5.5 years, and the average living space for households is 430 sq ft.

All land in Hong Kong is government-owned and leased to buyers.

“The chief executive has not got a policy which takes hold of the land which is, and could be, available,” said Leo Goodstadt, a former head of Hong Kong’s Central Policy Unit, who last year addressed the issue in a book, A City Mismanaged. “This is the most serious problem in Hong Kong,” he added.

Some land rights activists, villagers and experts say aggressive rural land acquisition is commonplace.

A businessman surnamed Tang, whose family owns ancestral land in Yuen Long district, says he has seen many instances of villagers’ being hounded to sell land, sometimes by local gangsters.

“The developers don’t do the dirty work themselves. In each district, they have people who buy land for them,” Tang said, declining to give his full name, that of his village or the developer for fear of reprisal.

“They try to distance themselves from the thugs who could use violence to force people to sell the land,” he said.

None of the developers responded to questions about such claims.

Tang said he was pressured to sell one 10,000 sq ft field for HK$200 (S$34) psf. It’s hard now to find any Hong Kong flats for less than HK$10,000 psf.

Chan Wai-ming, a villager in the Shap Pat Heung district, told Reuters he was forced off a plot now held by Henderson Land.

Chan said unknown people scared his family by swearing at them frequently, placing an effigy of a devil outside his house, and scratching his car. Henderson didn’t respond to repeated requests for comment.

Wu Chi-wai, the chairman of Hong Kong’s largest opposition party, the Democratic Party, said developers are generous political donors, and have tremendous influence over the elite committee that selects Hong Kong’s leader.

Lam’s office did not respond to a Reuters request for comment, saying only that “finding land is the pressing problem that we need to tackle urgently”. None of the developers responded to requests for comment.

Wong of the government task force told Reuters that simply rezoning and taking land from the developers had its own risks.

“They have leverage over the economy, over the community as a whole, because land is a scarce resource,” Wong said.

In the idyllic hamlet of Ngau Tam Mei near the Chinese border, village chief Chau Kwei-yin, 63, shrugged when speaking of developers who have been circling his fields and fish ponds for years, trying to get him and others to leave.

“I understand the need for development. The developers are just trying to make money, that’s their aim in life,” he said.

“The government needs to do more to control them and our land, for the people. After all, we’re talking about Hong Kong’s future.”

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