Concrete Analysis | Vacancy tax is a short-term solution to Hong Kong’s long-term housing shortage crisis
- Introduction of a similar vacancy tax in the UK, Canada and Australia did not have any effect on freeing up property, but instead caused rents to rise
The Hong Kong government plans to introduce a vacancy tax on empty new flats to pry open supply bottlenecks by imposing fines on developers for hoarding new homes. Under the proposed legislation, a tax equivalent to twice the estimated annual rental value will be levied on flats that remain unsold after 12 months of receiving an occupation permit.
According to the Rating and Valuation Department, the preliminary findings in the Hong Kong Property Review 2019 indicate that the vacancy rate of new flats is 4.3 per cent.
The vacancy rate in most countries is in the 5 per cent to 10 per cent range. Although the legislative intention of the new tax is to encourage developers to expedite the sale of vacant residential units, given that there are only 10,000 vacant residential units held by developers, accounting for just about 1 per cent of total units in Hong Kong, the effect of the policy on the overall supply of domestic property is expected to be very limited. In fact, major developers in Hong Kong are mostly listed companies, answerable to their shareholders, making it almost impossible for them to deliberately hoard units for long periods.
With considerable demand for small to medium flats in Hong Kong, the tax may compel developers to sell their completed residential units as soon as possible, but this might not work out for the luxury segment. The target group for luxury homes is quite small and more time is required to close a sale. Furthermore, it is likely that developers will transfer the tax burden to the buyers in such cases.
In fact, luxury property comprises a rather insignificant portion of the overall supply sought by the general public, especially first-time buyers. As such, I’m of the opinion that the government should consider exempting luxury units from the vacancy tax.
In addition, there was no vacancy tax provision in the lease at the time of the land sale. If the developer had known if a vacancy tax would be imposed at a later date, the bid probably would have been different. It seems pretty unfair to me that such a tax is being imposed on the developer now.
