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Hong Kong’s government has taken another shot at bringing down soaring house prices, introducing a new policy that is set to drive a shakeup across the market.

Among a slew of housing policies announced this month was a tax on unsold new homes. The levy gives developers 12 months after a new building’s occupation permit is issued to sell or lease out all of the units. If they fail, a levy equivalent to 200 percent of the unsold homes rateable value, or twice the annual rent the property could fetch in the market, would be imposed.

While the number of unsold units in the primary market is small, hoarding them amid a perceived supply shortage has been part of the driving force behind the introduction the new tax.

Developers have called the rule “unfair” and “unreasonable.” But it is just the latest government initiative aimed at tackling the lack of affordability in the city, where home prices have more than doubled in the last decade.

One likely impact of the policy is that developers bid less aggressively in the land sales market to safeguard their bottom-line, according to Ingrid Cheh, from JLL Hong Kong. She notes they could also adopt a more cautious pricing strategy at launch.

“As long as the market anticipates capital value growth to outpace the rate of vacancy taxes, then it would be bearable,” Cheh says.

Cooling effect?
Hong Kong’s home buyers already have taken a wait-and-see approach in the wake of the announcement. Reports claim there has been a drop in sales by a third in the small- to medium-sized homes on the secondary market in the immediate aftermath, as some buyers potentially shifted focus to the government’s home ownership scheme units due to more attractive pricing.

For now, the luxury segment has continued to see robust activity as “the levy is deemed quite punitive, especially for luxury units, as it represents 5 percent of property price,” Cheh says, and hence this urges developers to offload existing luxury stock.

Some observers remain sceptical of the tax’s overall sting in arresting the property prices in the world’s most expensive residential market.

“Mass residential projects are less likely to be affected by the vacancy tax. Home prices are not expected to fall given the higher appetite levels although the new policy measure could help to ease the pace of growth in capital values,” says Cheh. “There could also be more offloading on-hand inventory amid an expanding supply pipeline.”

Click to read about what Hong Kong’s sky-high home prices mean for investors.

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Ingrid Cheh

JLL Hong Kong

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