With vacancy tax, will Hong Kong government be smiling when the dust settles on war with developers?
Amid runaway property prices, city faces dilemma in introducing any new levy which could spark political controversy and disrupt status quo
“The stairs are creaking but no one is coming down,” the Chinese saying goes, and that could have well described the long-talked-about property vacancy tax until, over the past week, action started speaking louder than words.
The government is now finally moving on it, but why the change of heart?
It started with Financial Secretary Paul Chan Mo-po telling lawmakers last week that the government was at the final stage of studying a vacancy tax on developers who hoard empty flats.
With official figures showing there are about 9,000 unsold flats across the city, speculation has been rife that the government finally means business, and now it seems to be very much the case.
It is understood the controversial new tax has got the final green light from Chief Executive Carrie Lam Cheng Yuet-ngor, who will announce it soon before July 1 to mark the first anniversary of her election win. An insider familiar with the study even suggested it could be next week before Lam’s Europe trip, if all the preparation work is ready.
Hong Kong’s soaring property prices no longer shock people, but there was still a jaw-dropping moment last week when a car parking space was sold for an astonishing HK$6 million (US$760,000).
Chan’s heads-up and Lam’s support have sent the latest signal that something needs to be fixed as the market keeps galloping onwards and upwards.
Chan vowed in March, while attending a South China Morning Post event, that he would have “no fear” in waging war on developers. Lam in May further confirmed the government was looking into the feasibility of the vacancy tax.
But ironically, many believed at the time it was more talk for deterrent effect than real action, as it was widely known no overall consensus could be reached within the government.
A major dilemma Hong Kong faces is that the city’s simple and low taxation system has always been its pride, and introducing any new type of tax could disrupt a well-established regime, sparking political controversy.
The Basic Law, Hong Kong’s mini-constitution, also suggests the city, while enjoying the right to decide its own types of taxes, “shall take the low tax policy previously pursued in Hong Kong as a reference”.
So, will a vacancy tax make a big difference?
The answer is apparently yes and no, depending on which interest group one belongs to. But in curbing runaway property prices, a government without concrete measures could be in big trouble.
That is definitely not something Lam, who has a reputation for being a fighting woman when necessary, wants to see, though the difficulties are tremendous.
Some critics, citing mainland China as a reference, point out that authorities up north usually go for administrative cooling measures.
One recent example was the strict restrictions on property transactions in Dandong, a city bordering North Korea, which saw rapid inflows of hot money ahead of the summit between US President Donald Trump and North Korean leader Kim Jong-un.
President Xi Jinping’s famous quote that “houses are for living, not for speculation” has also prompted all sorts of property control measures.
But here in Hong Kong, it doesn’t take a genius to tell you that similar effects won’t be achieved by what the city’s leader or senior officials say. The fact the city has very different systems, politically and economically, leaves the government with fewer bargaining chips in a free market, unfortunately.
Public expectations are growing while the supply of housing in both the private and government- subsidised markets continues to fall seriously short, and the ongoing debate on land supply is still a talking shop.
Will Lam and her team be smiling at the end of this political wrestling between the government and private developers? Action will tell.