Cooling measures could impact on new build property prices in Hong Kong

Home prices in Hong Kong cold start falling as a number of new Government policies aimed at bringing down values take hold on the new build housing market.

Among the new cooling measures is a tax on unsold new homes which gives developers six to 12 months after a new building’s occupation permit is issued to sell or lease out all of the units.

If they fail, a tax amounting to 200% of the unsold homes rateable value, or twice the annual rent the property could fetch in the market, would be imposed.

Another change has been cutting the price of subsidised homes under the Housing Ownership Scheme to 52% of market rates from 70% previously.

Experts point out that while the number of unsold units in the mainstream market is small, developers have been holding some back amid a perceived supply shortage and the Real Estate Developers Association called the new tax unfair and unreasonable.

But the Government has argued that it needs to tackle a lack of affordable housing in Hong Kong and pointed out that home prices have doubled in the last decade.

According to Ingrid Cheh of real estate advisor JLL Hong Kong, developers may re-assess their pricing strategies. ‘As long as the market anticipates capital value growth to outpace the rate of vacancy taxes, then it would be bearable,’ she said.

But there are anecdotal reports that buyers are already adopting a wait and see attitude and that sales have dropped by a third in the small to medium sized residential market.

At the higher end of the market, where the tax represents 5% of the price, developers are actively trying to get sales moving but JLL pointed out that an increasing number of buyers have been relying on developer financing, which charges higher interest rates and require no stress test on buyers.

According to Joseph Tang, JLL managing director, developers could move to building even smaller apartments to reduce the extra risks arising from the new tax by keeping lump sums affordable and maintaining high rates of sales.

The average size of units under construction has already decreased by 40% from 1,022 square feet in 2013 to 600 square feet so far this year. Tang believes that more brownfield sites will be used for housing to boost the land supply.

‘About 71% of brownfield sites are under planning and already earmarked by the Government for potential development. Brownfield sites will be a more effective and faster option for generating land supply than through land reclamation,’ he added.

JLL said the 8.7% growth in local housing prices seen in the first half of 2018 could now fall to between 2% and 7%.