Vacancy tax may hit luxury property market hard: JLL

Developers may favour building mass residential units over posh homes.

The looming implementation of vacancy tax is expected to prompt developers to reject luxury homes in favor of mass residential units in the long-term, as high-end properties take a longer time to sell, JLL reported.

Also read: Developers bear the fallout of crippling vacancy tax

For example, Sun Hung Kai Properties is reportedly planning to build 1,573 apartment units instead of 90 luxury houses at its residential development site in Kwun Tung South.

In the near term, developers are expected to speed up the launches of new residential projects as well as lower asking prices to maintain sales volumes ahead of the vacancy tax. This will help lift supply in the short-term.

“Although the new levy will only apply to a small portion of the market, it is still likely to help lift supply that is desperately needed over the near term with developers to accelerate launches of new residential projects ahead of the implementation of the vacancy tax,” said Henry Mok, senior director of Capital Markets at JLL in Hong Kong.

“The glut of new units that are likely to hit the market because of the new tax comes at a time when market sentiment is weakening against the dour outlook for the local economy. For developers looking to maintain high sell-through rates, a further lowering of asking prices appears to be unavoidable. Given the tight spread between the primary and secondary markets, we believe that this will ultimately result in a drop in secondary market prices,” added Henry Mok, senior director of capital markets at JLL in Hong Kong.

Around 10,000 vacant units were recorded by the end of June, accounting for about 20% of the total number of vacant units in the market by end-2018.

Also read: Developers likely to build smaller units amidst vacancy tax

The vacancy tax, which is set at 200% the rateable value of a property— currently around 5% of the property’s price—will be levied on all new units which have been left unsold one year after being issued with their Occupation Permits or have not been leased out for more than six months over the same period. It is expected to be passed as a law by end-2019.

Despite secondary market prices having increased by 3.7% in 2019 so far, JLL maintains its forecast for prices to retreat by up to 5% for the year as a whole.

Residential transactions in August continued to shrink amidst an ailing property market. According to data from the Land Registry, residential S&P volumes dropped by 15% MoM to 4,084 transactions during the month.