Hong Kong tax on vacant apartments unlikely to lower property prices

Hong Kong’s plans to impose a tax on new, unsold apartments are unlikely to have much of an effect on the city’s housing market. The rate was announced as part of a broader effort to boost supply in the world’s most inaccessible real estate market. But analysts at Goldman Sachs, Morgan Stanley and JPMorgan Chase say the new tax will not stop the price increase.

Cooling the housing boom in Hong Kong is one of the biggest challenges facing local authorities. They had announced a series of measures to cool the market, but they failed, as demand grew before chronic housing shortages led to a price increase of more than 50% in the last five years.

Under the new regulations, apartments that remain unsold for more than six months will be subject to a tax, equal to twice the annual rental income or approximately 5% of the property’s value. According to analysts, this is a rate that entrepreneurs can easily handle.

“The absolute level of taxes appears to be relatively manageable,” said analysts at Goldman Sachs Group, who compared relatively low costs with annual price volatility.

“Since most vacant properties are high-value, rental yields are lower, so the tax, as a percentage of the cost of housing, will also be lower,” considers the property and conglomerate research department. of JPMorgan Chase in Hong Kong.

“The tax is lower than in Singapore, which starts at 4% if the apartment is unoccupied for two years after completion and increases to 12% if it is unoccupied four years after construction is completed,” Morgan Stanley analysts add. .

The new tax must be approved by Hong Kong MPs, giving businessmen six to nine months to sell vacant apartments.

About 66% of the total 9,000 vacant homes in the primary market have been completed since 2017. Entrepreneurs may not have to sell them as quickly as the government hopes. Entrepreneurs with more homes available for sale may be under pressure in the short term, but selling homes will increase their cash flow and improve their balance sheet in the medium term.

In Hong Kong, entrepreneurs often sell apartments as soon as possible because their main concern is to recover funds and buy more land. Unsold stocks consist of luxury apartments, which are more difficult to sell, or homes in an area where the supply of land is limited.

“The vacant home tax may have less of an impact. In most cases, its enforcement will not be necessary,” says JPMorgan Chase.

However, according to experts, the introduction of a tax on vacant homes will not affect the sales strategies of entrepreneurs.

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