Housing supply has been a long-standing problem in Hong Kong. To contribute to relieving the problem and speed up the development of new housing, the government said they would not rule out the possibility of revisiting a shelved vacancy tax proposal for unsold homes. Read on as Pureanae Jang of Valuation & Advisory Services shares her views on this.
On the office market front, despite overall office recording a YOY drop of -14.8%, Richie Lau of Office Services observed that leasing activities have started to pick up again as tenants are taking advantage of the attractive leasing terms being offered in Grade A buildings. His observation echoes to our latest Quarterly Report for Q1 2021 for the office leasing market. Read on for more observation from Richie on the office leasing market.
Possible government’s plan to revisit vacant-flat tax proposal
A plan to introduce a private residential vacancy tax to deter developers from hoarding new flats could be revived, said the Secretary for Transport and Housing, Frank Chan Fan on 15 April 2021.
In view of Hong Kong’s housing shortage, the government proposed the vacancy tax in June 2018 over concerns that developers were hoarding flats after completion. Under the proposal, if the flats were unsold or unrented for 183 days or for longer than 12 months, developers would pay special rates - a flat rate of 200% of the rateable value of the unit. The government did not proceed with the proposal after considering the economic situation and "strong and differing views in the community."
Chan said on 15 April 2021 the government has been collecting more data about vacant flats "to grasp the actual situation and make arrangements for relevant policy”. He added: "We will not rule out reintroducing the vacancy tax based on the current development." The number of unsold first-hand private residential flats in completed projects went up 24% from 9,900 units by the end of 2019 to 12,300 units by the end of last year, the latest Transport and Housing Bureau figures show.
The introduction of the private residential vacancy tax may not speed up the supply of first-hand homes nor trigger a price fall in the residential property market as developers usually look to achieve strong sales for mass residential projects, rather than high prices. Nonetheless, as demand for nano-sized flats has softened since the Covid-19 pandemic, the introduction of the vacancy tax is likely to affect opposite ends of the residential property spectrum - the luxury market, the market with a relatively high percentage of unsold units, and the nano-sized residential developments.
Office leasing activities picking up
As of March 2021, overall office market rent continued to decrease YOY at -14.8%. Vacancy rate rose to 10.1% which is a 0.3% increase from February this year, and overall office rental forecast remains at -7%. However, leasing activities have started to pick up again as the fourth wave of COVID-19 subsides, where companies are taking advantage of the attractive commercial terms being offered in Grade A buildings. Western financial institutions continue to downsize their operations. For example, Standard Chartered vacated nine floors in Central plus three floors in Kwun Tong, DBS surrendered two floors in One Island East, UOB gave up their linked floor in ICBC-Champion Tower and relocating to one floor in Champion Tower, and most recently, Franklin Templeton giving up some space in Chater House. On the other hand, we observe that securities, fintech, IT and fund houses are the particular sectors expanding and acquiring office space.