The Past and Present of Empty Homes

囤積吉樓的今與昔

囤積吉樓的今與昔

The Hong Kong government's proposal to impose a vacancy tax on empty new flats has set the city abuzz. The public has different opinions on whether it will be effective in forcing developers to sell new homes instead of hoarding them. Personally, I believe that if the vacancy tax rate is set at over 1%, it will be difficult for developers to pass the increased costs entirely onto the buyers. Especially for those who keep their properties vacant for a decade, the accumulated taxes would amount to a huge sum. On the other hand, if the real estate market takes a hit from unpredictable events, these new flats— originally kept vacant to drive up profits—will be at risk of being sold cheap. Therefore, I do think that a vacancy tax can greatly increase the risk and cost of hoarding new homes.

Of course, there have been cases where this hoarding strategy has worked. A wealthy developer once kept a few of its new residential developments unlet and unsold for over a decade, and then renovated and released these units in batches in 2002 and 2010 at high prices. However, it's actually very rare for Hong Kong developers to profit through hoarding large numbers of new homes. In the aforementioned case, the developer was initially forced to postpone sales due to a combination of reasons; during its vacant period, the financial crisis drove housing prices to the ground, which took a very long time to recover from. I imagine the developer must have had doubts in its decision to hold onto these homes.

Apart from a small number of new developments that have been kept vacant, the same has also happened in the secondary market. In the 1990s, a friend of mine who is an experienced investor bought several new homes and didn't let or sell them for years. I asked him about this out of curiosity, and he explained that he saw huge potential for the future of the market, and so decided to purchase multiple high-quality units that he thought were underappreciated at the time. Because these units were part of large housing estates in premium locations, he was confident about future sales. When asked why he would not lease them out, he said that some traditional buyers preferred new vacant homes that have never been used in housing estates that had been for sale for two to three years. This type of buyer would pay close attention to the safety records of these estates in recent years, looking out for whether there had been major incidents. My investor friend would then sell the vacant units to such buyers at prices 20 to 30% higher than market rates, making bigger profits.

Today, residential land shortage is a common concern amongst Hongkongers. As the Greater Bay Area initiative is in full force with governmental support and will certainly bring major benefits to Hong Kong, the city's real estate market is much coveted not only by local residents but also by mainland Chinese and foreign investors. That said, investors these days tend to lease their new properties out for a few years before making judgements on whether to sell. In recent years, I've never heard of cases where owners keep their second-hand homes completely vacant for long periods of time.