Hong Kong’s proposed vacancy tax could have this one unintended consequence on home builders
The Hong Kong government’s plan to impose a vacancy tax on property developers who hoard empty, unsold flats could have the unintended consequence of spurring home builders to reclassify some units for the rental market.
Sun Hung Kai Properties (SHKP), which has the biggest hoard of completed flats, said on Sunday it would retain a block of 140 units at its soon-to-be completed project, Victoria Harbour, in North Point for leasing, instead of sale. The announcement reflects a U-turn in the developer’s plan to sell the flats.
Louis Chan Wing-kit, chief executive of residential sales for Asia-Pacific at Centaline Property Agency, said the change was made in response to the government’s proposed vacancy tax.
“It is hard for all units at Victoria Harbour to sell in a short period of time given the high prices,” he said. “Leasing is easier to fill up the block than selling them out.”
Only 68 units, or 19 per cent, of the 355-unit Victoria Harbour have been sold since it was launched in December.
Meanwhile, Donald Choi, chief executive at Chinachem group, said he might consider the possibility of leasing instead of selling some houses because of the lengthy time it would take to find buyers. Chinachem’s upcoming launches include the luxury residential development Jade Grove in So Kwun Wat, Tuen Mun. The project is comprised of 91 houses each with an area of 2,000 square feet.
“The decision depends on whether the project’s location and layout are suitable for leasing. We need to consider different factors,” he said.
Stewart Leung Chi-kin, chairman of Wheelock Properties, said the company is holding to its intention to find buyers for properties that have been earmarked for sale, as the proposed vacancy tax had yet to be passed by the Legislative Council.
“We hope we can sell all these completed, unsold flats before the tax takes effect,” he said, referring to flats and houses at the exclusive Mount Nicholson on The Peak.
The joint venture development, which features Asia’s three most expensive flats with prices as high as HK$132,060 (US$16,825) per sq ft, still have 16 apartments and six houses available for sale.
Most developers are offering their new projects for sale on the market.
“Why punish us if we cannot clear all of them?” said Leung, who is also chairman of the Real Estate Developers Association, an industry body.
Alfred Lau, a property analyst at Bocom International, expects more developers will opt for leasing to bypass the vacancy tax.
“Instead of flooding the market at a reduced price, developers prefer holding premium properties in prime locations as they remain bullish on prospects for the luxury home sector,” he said.
“These apartments could sell for much higher prices if they hold on to them.”
Lau cited SHKP as one example, saying the developer has been holding back around 100 completed, empty units at The Cullinan atop West Kowloon Station for more than 10 years.
SHKP generated HK$600 million in revenue from the sale of 44 units at Victoria Harbour development in just four hours on Sunday.
An unidentified corporate buyer paid HK$87.5 million for six units including two studios. A studio flat of 286 sq ft at Victoria Harbour was listed at HK$10.25 million, or HK$35,840 per sq ft, setting a record for such unit in North Point, while a larger sized apartments on a high floor sold for HK$100.05 million, or HK$62,574 per sq ft.
A vacancy tax announced on June 29 would impose financial penalties on developers who do not put completed units up for sale in timely manner, a government move designed to pry open supply bottlenecks.
The tax applies to all newly completed flats vacant for six months in a year. Flats are considered “completed” a year after obtaining an occupation permit.
Analysts said the tax rate was equivalent to 4 per cent to 5 per cent of the value of the property. The proposed tax needs Legislative Council approval before implementation.