It largely wasn’t. For all that I have special interest in the city, it was objectively quite bad for many reasons. Not the least of which was the abysmal state of the plumbing and electrical. The place had major sanitation issues. It was also at bad risk of fire and collapse. It had to be torn down.

I believe they offered most of the tenants money to relocate. Kowloon walled city had been built specifically because the space it occupied was in a Grey area with regards to jurisdiction and administration. It was nominally belonging to China, but existed surrounded on all sides by British Hong Kong. The British refused to do anything there besides basic water/electrical/mail. And China couldn’t administrate there because they couldn’t physically reach it. Once Hong Kong was returned to China, there would no longer have been a purpose to Kowloon Walled City. So it was going to be torn down eventually. I know some tenants refused to leave as long as possible, but once water and stuff was turned off they capitulated.