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  • Dec 20, 2014
  • Updated: 12:01am
NewsHong Kong

CY Leung threatens a vacancy tax on unsold new flats

Developers could be punished for hoarding homes, chief executive warns, but experts doubt this would boost housing supply

PUBLISHED : Monday, 21 January, 2013, 12:00am
UPDATED : Monday, 21 January, 2013, 7:22am


  • Yes: 86%
  • No: 14%
21 Jan 2013
  • Yes
  • No
Total number of votes recorded: 578

The government would not rule out the possibility of imposing a vacancy tax on unsold new homes to stop developer hoarding, Chief Executive Leung Chun-ying warned yesterday.

The idea - first floated a day earlier by one of his allies, executive councillor Barry Cheung Chun-yuen - would punish developers for dragging out sales. The vacancy tax could be a percentage of the rental value.

"I will not rule out any measures," said Leung, criticised last week for failing to boost the short-term housing supply in his maiden policy address.

"If there really are attempts to hoard and hold prices high … I will not just sit and do nothing.

"It is not pure commercial behaviour that the government sells land to developers for construction. We rely on them to deliver homes in a timely manner to address people's needs."

Secretary for Transport and Housing Professor Anthony Cheung Bing-leung said the vacancy rate for private homes, new or second-hand, was 4 per cent. "This is not a high rate ... but if it can be lowered to 3 per cent, it'll be even better, of course."

Developers must complete construction before a date specified in the land lease, but there is no deadline to sell all the flats.

There is a tax on vacant accommodation in France, but not in countries in the region like Singapore. On the mainland, the government can seize land sold to a developer if construction does not start within a few years.

There is a stock of 4,000 unsold new flats in the private sector. Official figures show that last year, of the 6,100 flats built by the private sector, one-third, or 2,000, remained unsold. Of the 9,400 flats built in 2011, 1,000, or 10 per cent, are still unsold.

Hang Lung Group, chaired by Ronnie Chan Chichung, a Leung supporter, still has about 1,000 flats unsold in The Long Beach in Tai Kok Tsui, although the 1,829-flat project was built in 2006. The developer also holds The Harbourside in West Kowloon, which has about 250 out of 1,122 flats unsold.

Stewart Leung Chi-kin, chairman of the Real Estate Developers Association's executive committee, said it was not true that developers were unwilling to sell all flats of a new project. "Often they have priced the remaining units but no one takes them. In a free society, you cannot force people to cut the price if they can't sell them quickly."

Lawmaker Kenneth Leung Kai-cheong, a tax specialist, said the tax would not be effective if the tax rate was lower than the investment return to developers.

"It seems to me the CE floated the idea only to soothe the middle class, who are angry that they don't benefit from the policy speech," he said.

Andy Kwan Cheuk-chiu, a member of the Long Term Housing Strategy Steering Committee, said as there were only a few thousand unsold flats a vacancy tax would not help much in boosting supply. But it would deter developers from bidding in land auctions.


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This article is now closed to comments

I list below a very crude skeleton structure for vacancy tax:
1. The vacancy tax should be at least 50% of profits earned from selling the deemed vacant residential flats
2. Vacancy period starts to count from the date of issue of residential projects pre-sale consents (PSC)
3. Flats are subject to vacancy tax if they are listed for sale at 15% above the average market value of all new flats available for sale at the date of issue of PSC.
4. Vacancy tax will be imposed on unsold flats not listed for sale after one year from the date of issue of PSC.
5. The revenue obtained from vacancy tax will be used for Public Housing purposes.
For decades New York City adopted a rule for developers to add affordable housing units to their new project in the city. I used to live at Carnegie Park of an up-scaled rental apartment building. A low cost housing located just adjacent to it with all public amenities accessible for all residents. Despite of income disparity, residents all cohabited well in a very well designed housing project. I appreciate the mix not only that the rule mitigates severe housing shortage but more importantly to maintain an income mix that an efficient city must depend on. There is also a bonus achieved at the Carnegie Park that children played together concerned not what their parent’s income be. Perhaps no welfare socialism or fearless capitalism could foresee that.
better alternative may be to have higher school/district taxes. no problem if you don't want to rent and leave your property empty, but you still have to pay x% in school/district taxes.
seems the property rates is too low (vs USA or Canada, my reference) so people who buy property can afford to pay it and don't care about carrying costs of unrented units.
A vacancy tax on unsold property will need to be quite high to discourage hoarding by developers . This will in turn give incentives to developers to enter into arrangements that mitigate this tax.
It would be simpler to give developer a deadline to sale all the flats, this could be 6 months after the deadline for completion of construction in hte land lease.
define vacancy?
What if the the owner wants to rent the place out at a price that there is no willing renter as of now and as a result the flat is vacant?
I am sorry I and many other supported the Stamp Duty tax on foreigners and speculators but a vacant tax will harm much more by standers who want higher returns in yield and not capital appreciation.Than what next a stock holding tax? a Gold holding tax? etc.....
If we truly want stable pricing for all and fairer treatment to savers and the underdogs of society instead of being biased to the rich and speculators. DITCH THE PEG AND BACK THE HKD WITH SOLID GOLD AND SILVER. So there will be no more injustice, the rich to poor will be punish equally for being on the wrong side, making a bad bet, and will also be rewarded if they are on the right side and making the right bet. Why is it that everytime a bubble burst the gov't is oblighed to print money and save those who did wrong at the expense of those who did no wrong or simply chooses not to participate. This is the true hidden injustice, because our money is back by nothing but the good will of those yanks who is in so much debt there is no way out already, and unfortunately an sizeable retarded population at home in HK still wants the USD peg for "stability". The only thing stable about the USD is its been depreciating ever since, because all gov't prefer to print money to save crooks and fools at the expense of honest humble people.
When we talk about the property market
Do we mean “the” market should be the same for
(1) a $180M 3000+sf Strawberry Hill house
and a $3M 500sf new Yuen Long flat; and
(2) Unique new offers in the Opus
and an assembly line unit in a mass production estate?
There might be justification for vacancy tax
if the purpose is to increase revenue for some specific application
but not if it’s for enforcing supply quantity
Shouldn’t include luxury units in quantity calculation
Otherwise it would be unfair favor for wealthy buyers at the expense of developers and sellers.
This sounds more like a warning than a concrete plan. For all those who think vacancy tax is a wonderful idea, consider what happens to YOUR property value if developers need to sell their properties into a falling market. If you owned property in HK in 1997 or 2003 you know what that would have felt like. By taking such a position, you are merely joining the argument over whether speculation helps or hinders 'free' markets. HK is unlikely to do away with speculation in principle so you will end up supporting a bureaucratic cat-and-mouse game where government always loses -- recall the absurd entry of government into regulating floor numbers because one clever developer sold lucky floor numbers beyond the actual height of the building. Better (and easier?) for government to stipulate a maximum allowable time for development as a condition of leaseholds. That way the developer explicitly agrees to the rules when they develop the site.
Owners borrowing from banks back in 1997 didn't have to put down 30% or 50% (for those purchasing flat > 10M). These safe nets are the lessons from before.
And I don't think that the thousands of units held by developers will devalue your property by 50% if there were to be released all at once.
Also I think (though don't have any real figures) that mortgage on mortgage (on mortgage) are less common or affordable due to the new limitations by HKMA now. Hence another safe nets to avoid homeowner collapse or should I say a moderate slump.
The safety nets you are talking about are for protecting banks' equity capital, not for attempting to counteract market forces. Leverage obviously matters but psychology is hardly irrelevant. Speculators who want to avoid losses will, all else equal, be more likely to sell into a down market if they believe there are additional (comparable) units ready to come onto the market.
I did not imply that property prices would move by a fixed amount due to the imposition of a 'vacancy tax'. I am suggesting that in a market like HK where property owners re-price from day-to-day based on what the Hang Seng did in the past week or what the CE said in his policy speech etc., the expectation of incentivised selling will push prices downward all else equal. If you don't accept that price distortions in commoditised markets have effects on supply which feed back into price then we are having two different discussions.
It is time to tax the vacant properties; have courage, Mr CY Leung and team. Charge each subsequent property with a higher rate, and for developers who are holding property or vacant land, manipulating the market, charge higher tax. Such tax can also apply to ownership of private cars.



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