Upcoming Vacancy Tax Making New Homes Cheaper Than Pre-owned Ones
As the housing market shows signs of recovery, developers are now selling their remaining units by way of tender. Last week, sales began for The Horizon Phase II, the first large new development to be launched in a while. The developer released 295 units in a lucky draw as required by the government, and attracted close to 5,000 applications. This time, each prospective buyer was only allowed to submit one application, which goes to show the popularity of the project.
Apart from reasonable prices, the fanfare that The Horizon Phase II enjoyed was largely due to the fact that amongst the 295 offerings, there were 54 small units perfect for first-time buyers, with an ultra-appealing price tag at just under HK$4 million. You wouldn't even be able to find 30-year-old pre-owned homes with this kind of price, let alone brand new ones! Considering that tiny units with saleable areas of 280 square feet in Sha Tin's City One were selling for over HK$5.5 million, The Horizon Phase II units are a great steal. The HK$4 million price point also means that these units are eligible for 90% loan-to-value ratio mortgages, making them absolute unicorns in the market. However, it's a pity that there were only 54 of such units available. In other words, the 5,000 applicants had about a 1% chance of getting their hands on one of these rarities.
According to colleagues, over half of the applicants had their eyes set on small units. It's no surprise that all studios, one-bedroom and two-bedroom units were completely sold out. In the end, 219 units—which made up 70% of all available units—were sold. The remaining 76 units are all larger homes priced at over HK$10 million.
I always told my friends and clients, “if you have enough cash on hand, don't take the high loan-to-value ratio mortgages that developers like to offer. It's not a big deal that secondary homes are older—they are better value for money than new properties after all.”
However, things have changed in the past couple of years. Thanks to cooling measures, there are fewer sellers in the secondary market, and pre-owned homes are becoming increasingly expensive. In contrast, many housing projects that started a few years back are now being completed and available on the market around the same time. With vacancy tax being introduced, developers are rather restrained with their price setting for new housing units.
The demand for small units is high, so selling them is not a challenge for developers. Meanwhile, there is an abundance of large homes. In the past, developers could afford to keep them for long periods of time, waiting for buyers to show up. With the vacancy tax, however, I figure that home-builders will try to offload them as fast as possible, although this phenomenon is unlikely to last long. Right now, developers have already slowed down the pace of new constructions; private housing supply will be reduced to account for 30% of the target for the coming decade. Once the leftover units are sold out, we probably won't see any new homes cheaper than pre-owned ones, so I would suggest that those looking to upgrade to bigger homes act early to snap up good deals.