Property developers blast ‘unfair’ vacancy tax, call for longer grace period for flats that don’t sell

An association that represents the city’s major developers blasted the vacancy tax introduced Friday as “unreasonable” and “unfair”, urging the government to grant a grace period for flats that have been put on the market but fail to find buyers immediately.

“The government should allow developers more time to sell stocks of flats, especially large flats that could not be sold in a short period of time,” said Stewart Leung Chi-kin, chairman of the Real Estate Developers Association’s executive committee (REDA).

Chief Executive Carrie Lam Cheng Yuet-ngor on Friday evening announced details of the vacancy tax for newly built flats that remain unsold.

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The tax applies to all newly completed flats that had been left vacant for six months in a year. Flats are considered “completed” one year after obtaining an occupation permit.

The proposed tax would be equivalent to two years of rental income, calculated by government specialists and based on market rates. Analysts said the tax rate is equivalent to about 4 to 5 per cent of the value of the vacant property. The proposed tax needs Legislative Council approval before implementation.

Lam said the aim of the tax is to release more flats and prevent developers from hoarding newly-built units, instead of suppressing home prices. The prices of pre-owned homes in Hong Kong gained for a 26th straight month as of the end of May, making it the least affordable property market in the world.

However, Leung said there was no merit to claims that property developers were hoarding completed units.

“We do not hoard empty flats. Sometimes, we cannot find buyers immediately even if we offer them on the market,” said Leung. 

Leung said the government should be more flexible.

“If we have tried all methods but failed to find buyers, the government should give us a grace period before levying the tax,” said Leung.

“We are penalised because we cannot find buyers. Is that reasonable?” said Leung.

However, Leung said the association would seek to gain the support of lawmakers through dialogue.

Joseph Tsang, managing director at JLL, said the vacancy tax was a disappointment for property developers, although its long term effects are uncertain.

“The vacancy tax is a ‘spicy’ measure, which will increase costs significantly for developers. Asking prices for brand new residential projects will become less aggressive. We also expect developers to become more conservative in bidding for land.”

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“However, the government has misplaced its focus. The introduction of the vacancy tax and the amendment to pre-sale consent will only affect the luxury market. Developers usually look to achieve strong sales for mass residential projects, rather than high prices. Even if developers speed up the sale of luxury projects, it won’t help average home seekers. The new tax will not trigger a price fall in the property market, but price growth will slow,” he added.

Shih Wing-ching, founder of Centaline Property Agency, said the vacancy tax may cause developers to apply for an occupation permit and consent to sell flats at a later stage.

Among other measures outlined on Friday, to ensure the timely release of uncompleted flats developers would be required to sell at least 20 per cent of the total number of units approved by the Lands Department in the presale consent, including those sold through tender.

“In new supply areas such as Yuen Long and Kai Tak, the sales of projects may conflict since developers are forced to launch them at a similar time,” said George Wong Chi-fung, a surveyor at Ricacorp (CIR) Properties.

Shih said the new rule governing the minimum sale requirement will cause developers to price flats more cautiously, and at prices which could be more expensive.

“With the new rule, developers will need to sell at least 20 per cent every time. The risk of each sale increases. They may sell flats more expensively because they are worried the flats are sold out too fast.”