Hong Kong housing

Copying Singapore’s approach to flat sales could drive down cost of land and stop Hong Kong developers hoarding flats, say former government advisers

Pair suggest alternative to vacancy tax could be more effective in solving city’s housing crisis

PUBLISHED : Sunday, 17 June, 2018, 2:20pm
UPDATED : Sunday, 17 June, 2018, 10:40pm

Hong Kong should follow Singapore’s lead and give developers a deadline for selling flats when granting them the land, two former government advisers have urged.

The suggestion came as the administration moved closer to introducing a vacancy tax on new builds in an effort to release an estimated 9,000 vacant homes held by developers, increasing supply on the world’s least affordable property market.

Marcellus Wong Yui-keung, and Professor Liu Pak-wai, both members of the previous government’s Working Group on Long-Term Fiscal Planning, said while a vacancy tax may deter developers from withholding supply to wait for a better time to sell, a more direct way of preventing hoarding would be to set a deadline for sales.

Liu, of Chinese University’s institute of global economics and finance, said the government could put this deadline in the conditions of selling residential lots, or changing land use to residential, which developers bidding for, or seeking to redevelop specific sites, must fulfil if their bids are successful.

In Singapore developers must complete and sell all the flats within five years of being awarded the contract, or face a penalty of at least 10 per cent of the land cost.

“This is a very direct way to stop hoarding,” Liu said. “Developers will also become more conservative in their offers when bidding for sites, which will help bring down land prices.

“It will affect the government’s revenues from selling land, but the government has already been sitting on so much land income it does not know how to use it.”

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In the 2017-18 financial year, the government made HK$612 billion (US$78 billion) in revenue, of which 27 per cent was from land sales. All the land sale revenues will go to the capital works reserve fund, which is used only for infrastructure works.

Liu said it would also help stabilise property prices, because it would put pressure on developers to sell as soon as possible.

“Singapore has already been doing this. Why can’t we?” he said.

Wong, who is also chairman of the Taxation Institute of Hong Kong’s advisory board, said introducing a deadline for selling would be simpler than introducing a new levy.

However, Roger Nissim, a former senior official in the Lands Department, said a deadline to sell could be “a bit harsh” if the market goes downward, because it meant developers would be forced to sell at a loss, rather than waiting for a better time.

He said at best the government should only require developers to sell half of the completed flats within a specified period to give them flexibility should market conditions change.

“We have very short memories when it comes to the market dropping by over 50 per cent in the period of 1998 to 2003, which could possibly happen again,” Nissim said.

In response to the suggestion, a Development Bureau spokeswoman simply cited Chief Executive Carrie Lam Cheng Yuet-ngor as saying the government would elaborate on matters related to vacancy tax this month.

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It is widely expected that the vacancy tax could be charged as an addition to the existing rates system. Rates are charged at a percentage, 5 per cent this year, of a property’s estimated annual rental value.

Wong said this method was more practical, and required less administration work, because it would be based on the existing mechanism, but it would still mean more work than introducing a deadline.

He said the government would need to increase the rates by several times for the tax to be effective.

Economist Terence Chong Tai-leung worried that developers might increase flat prices to offset the vacancy tax.

As of the end of April, Hong Kong’s private property prices had continued to rise for 25 months. The city has been continuously ranked as the world’s most expensive property market.