At the beginning of this month, Financial Secretary Paul Chan Mo-po told the Legislative Council that the government is nearing the completion of its study of introducing a vacant property tax.
Chief Executive Carrie Lam Cheng Yuet-ngor said the same thing before Legco last Wednesday and promised to reveal further details within this month, suggesting that the administration is determined to press ahead with the new tax.
According to recent media reports citing sources, the government would only target newly built first-hand properties that have remained unsold, while the second-hand market is not going to be affected.
We believe that in order for the vacant property tax to work effectively, the government must make sure it can fulfill one fundamental purpose: deterrence.
In other words, the amount of the new tax must be significant enough to deter big developers from hoarding up their newly built flats in an attempt to sell them at better prices later.
However, based on a source, the government is planning to peg the amount of the empty homes tax to existing property rates.
In other words, the new tax would be calculated based on the rateable value rather than the actual prices of the properties, which means the actual amount of the tax is unlikely to be high enough to serve as a substantial deterrent to big developers.
Imagine this: if the actual amount of the vacant property tax only equals 1 to 2 percent of the property prices, then how could that possibly deter developers from withholding their newly built flats from sales, when home prices in Hong Kong often soar by 4 to 5 percent within a year or so?
As such, based on current data and information, the proposed tax on vacant first-hand private residential properties would only have a limited success in cooling down the sizzling property market. Or simply put, imposing the tax is, at best, better than doing nothing.
However, that doesn’t necessarily mean the vacant property tax is completely not worth pursuing.
Once the tax is launched, it can be subject to adjustment, and the government can increase the amount accordingly in order to enhance its deterrent effect.
But as we have always stressed, the root of our current housing issue is Hong Kong’s acute land supply shortage. We won’t be out of the woods unless the government can address this root cause decisively.
Meanwhile, the administration can also consider easing restrictions on mortgage lending to second-hand property buyers as a means to jump-start the second-hand property market in order to further boost home supply.
This article appeared in the Hong Kong Economic Journal on June 14
Translation by Alan Lee with additional reporting
[Chinese version 中文版]
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