Hong Kong property

Prices of luxury homes in New Territories expected to dip as developers rush to offload stock

With more than 1,500 high-end units due for completion by 2020, developers have started offloading some completed projects to avoid being slapped with the vacancy tax

PUBLISHED : Tuesday, 31 July, 2018, 9:44am
UPDATED : Tuesday, 31 July, 2018, 7:16pm

About 1,500 luxury homes will come onto the Hong Kong market in the next couple of years as developers race to avoid a new tax on empty properties, JLL estimates.

Analysts are expecting the price of top-end units, particularly those in the city’s New Territories, to go down as a result.

“Developers have to put their precious long-saved luxury projects on the market in order to avoid the tax. The old practice of holding on and waiting for deep-pocketed buyers to pay higher prices is gone,” said Derek Chan, head of research at Ricacorp Properties.

Hong Kong’s proposed vacancy tax could have this one unintended consequence on home builders

“Once a lot of developers are selling their projects at the same time in the same neighbourhoods, prices will dip for sure.”

The trend is already visible in the New Territories, where more than half of all new luxury flats due for completion by 2020 will be located, according to data from JLL.

Once a lot of developers are selling their projects at the same time in the same neighbourhoods, prices will dip for sure
Derek Chan, head of research, Ricacorp Properties

In Tuen Mun alone there are more than 100 new houses waiting to be snapped up by ultra-rich buyers.

Wheelock Properties plans to sell 52 units worth more than HK$2 billion (US$250 million) at its Grand Napa project on So Kwun Wat Road. In the same neighbourhood, The Blossomway by Kerry Properties is offering 43 houses for sale, while Peak Castle developed by Emperor Group has put 14 houses on the market.

“No developer would admit this, but the heavy tax which is going to be added onto their projects is the contributing factor,” said Denis Ma, JLL’s head of Hong Kong research.

Luxury homes in the New Territories are expected to bear the brunt of the vacancy tax, analysts say.

“The rental yield of luxury units in the New Territories is higher than those in traditional prime locations like, for example, The Peak. That translates into a higher vacancy tax rate that the developers need to pay,” said Vincent Cheung, deputy managing director for Asia valuation and advisory services at Colliers International.

To put JLL’s estimate that 1,500 new flats will come online in the next 30 months in perspective, just 80 new luxury houses were sold in the first half of this year, fetching a total of HK$10.33 billion.

Residential projects deemed to be complete within a year of obtaining their occupation permits will be subject to the vacancy tax if they remain unsold. The levy, equivalent to two years of rental income based on market rates, is expected to be 2.5 per cent to 5 per cent of the value of the property depending on the rental yield.

Hong Kong developers rush to sell empty flats ahead of new vacancy tax

The proposal, aimed at cooling the world’s most expensive property market by penalising developers who hoard newly built stock, has yet to be approved by lawmakers in the Legislative Council.

According to Cheung, on Hong Kong Island the tax rate will be about 2.5 per cent of total value for luxury units while in New Territories, it could be above 3 per cent.

If all of the 52 houses at Grand Napa, for example, ended up being charged vacancy tax, the developer would have to pay as much as HK$60 million.

“We’ve seen that the developers, small ones in particular, are a bit nervous,” said Chan. “We’d expect to see more developers cutting the prices of these flats by around 3 per cent to 5 per cent to attract buyers.”

Paliburg Holdings and Regal International, two builders behind the Casa Regalia project in Yuen Long were among the first casualties of the proposed new tax, knocking HK$10 million off the price of one of 12 unsold villas to HK$29.4 million. The villas, each measuring more than 2,000 square feet, have stood empty since they were completed in April 2016.

Hong Kong’s proposed vacancy tax could have an unintended consequence

Alternatively, developers may turn to the leasing market to avoid the tax if they cannot offload their luxury stock on time.

“The top end of the market in the non-prime locations will see more of this, since luxury properties typically take a longer period of time to sell in those places,” said Ma.

Sun Hung Kai Properties, which holds the largest stock of unsold flats, has made that decision already. The developer’s deputy managing director Victor Lui Ting said they will retain the 140 units at Tower 6 of its luxury project, Victoria Harbour in North Point, for leasing.