Eighth Time Lucky?
A new vacancy tax is the latest high-profile measure the government has levied to cool the housing market. Will it work?
政府高調徵收空置稅冷卻樓市，可有作用？
Another quarter, another couple of percentage points on home prices. In July, Knight Frank stated that residential property prices grew in June for a record 26th consecutive month, up 25% from the last peak in September 2015. With no end in sight, the government came up with yet more ‘cooling' measures designed to control a market that shows no signs of wanting to be controlled. The most high profile of the six new initiatives was the vacancy tax on unsold primary market flats, but the rest are likely to be just as ineffective.
Sell, Sell, Sell
The vacancy tax generated a lot of attention because it appeared to be putting developers on notice: No more hoarding completed, unsold flats for more than six months in anticipation of price climbs (again). According to the Transport and Housing Bureau, an estimated 9,000 new units were sitting vacant at the end of 2017, representing 21% of all vacant units—up from 8% six years ago. Relatively affordable pricing on small units and incentive financing have underpinned strong primary sales in the last couple of years, and developers have regularly been able to sell over 50% of a project at launch.
To break it down, the vacancy tax will tax developers on flats unsold for six months at 200% of the rental income, or roughly 5% of its value. Sure enough, developers offloaded a fair number of properties ahead of the levy (Bloomberg reported Sun Hung Kai Properties had the largest stockpile, at nearly 3,000 units), and the tax isn't nearly as aggressive as Singapore's staggered tax that peaks at 12% on properties fouryears vacant. “We are seeing a lot of new projects being launched at prices that are comparable to similar launches,” admits JLL'S head of research, Denis Ma. “This is a far cry from the aggressive tactics seen earlier in the year when developers would automatically hike prices against previous launches.” However, it is the vacancy tax combined with the 20% sales requirement per project that's done the job. “The 20% requirement has also stopped developers from drip feeding the market, or as the locals say, squeezing out the toothpaste.” Small- and medium-sized units also sit vacant at a much lower rate than luxury units, and so not surprisingly, the luxury sector will be hit harder—still leaving middleclass buyers firmly in the lurch. With the majority of vacant units being slow-selling pricey properties, rental yields are lower— and so is the vacancy tax. Deep-pocketed developers have little to worry about. “It must also be noted that some of the large discounts being reported by the media for homes in the New Territories are actually against the developer's asking price, which was astronomically high to begin with,” adds Ma. “When you look at their new price, it's usually in line with, if not still slightly higher than, prevailing prices in the vicinity.”