Financial Secretary Paul Chan Mo-po has hinted at the possibility of imposing a vacancy tax on property owners hoarding empty flats as part of efforts to address Hong Kong’s housing shortage.
However, it is doubtful if such a move would make a huge impact, given the low home vacancy rate in the city.
Data from the Rating and Valuation Department shows that 3.8 percent of the city’s total number of flats are vacant by the end of 2016, compared with the peak of 5.9 percent in 2006. This suggests that the city’s new home supply has failed to catch up with robust demand.
Researchers peg the natural vacancy rate at around 5 percent worldwide. Many flats are vacant because their owners are moving out for a renovation or waiting for tenants, and as such, they are likely to be exempted from any vacancy tax.
If that is the case, the proposed tax may release a very limited number of flats. Instead, it could exact heavy administration costs for both the owners and the government. It’s not a wise move.
Chan said in a media interview that the government may impose the tax only on a certain type of flats, rather than across the board. He said about 9,500 new flats have been built but remain unsold as of the end of last year. That figure represents a more than 50 percent jump from the start of last year.
Clearly, the new tax will mainly target property developers who have been hoarding flats. They have been holding back sales in the light of constant price rallies. Also, some of them have slowed sales for fear of excess supply in certain areas. In order to stimulate sales, they would initially offer a small number of flats as part of a “hunger marketing” strategy.
Housing is a deep-rooted issue in Hong Kong. It has a huge impact on people’s livelihood and politics.
Indeed, the government has to take action, instead of letting property developers drive up home prices even higher.
However, it’s highly doubtful if the government would go ahead with the vacancy tax. The government has to draft a bill and then submit it to the Legislative Council for approval. The city’s powerful property developers are likely to put up a strong opposition to such a move.
The government could take a shortcut by adding a clause that would set a time limit for developers to build homes for sale when they bid for a land site. Mainland China, Singapore, and South Korea have already adopted such a move to ensure steady market supply.
Nevertheless, the move may not have any immediate impact as it can only be applied to future land auctions. Local developers, meanwhile, have already amassed huge land reserves.
So given all these considerations, Chan’s remarks are more or less part of the government’s rhetoric to prompt developers to speed up flat sales.
The full article appeared in the Hong Kong Economic Journal on March 19
Translation by Julie Zhu
[Chinese version 中文版]
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