“Developers still need to proactively sell completed new projects to avoid special rates,” said Centaline Property Agency’s senior associate research director Wong Leung-sing, referring to the vacancy tax. “The 10,000 completed unsold homes has just reached the warning level. Do not let the number rise.”
The proposed duty, if and when it is passed by the city’s legislature, will slap a retroactive duty of about 5 per cent of a property’s value on the developer if the property remains unsold a year after its completion.
In response, developers have accelerated their sales pace to clear as much stock as possible before the proposed tax kicks in, said JLL’s senior director of valuation advisory services Cliff Tse.
“Although it is yet to be passed by the [legislature], developers are expected to be more sensitive to the market sentiment in adjust the construction progress,” said Tse, whose firm expects average prices to drop 5 per cent this year. “They might slow down the construction work of their new projects if market sentiment and outlook are not optimistic. Slowdown of construction could mitigate the burden of paying special rates if they forecast difficulties of selling new units.”
The marketing and sales campaigns ran into headwinds in May and June, when the year-long US-China trade war went up a notch, while Hong Kong was rocked by an unprecedented level of public unrest and civic strife through incessant street protests.
Wang On Properties sold two units of 104 flats at its Maya by Nouvelle project in Yau Tong on May 25, the second consecutive weekend of flops, as an unexpected deterioration in US-China relations gave buyers cause for pause.
Sentiments worsened from there, after an estimated 1 million people marched on the streets on June 9 to oppose a controversial extradition bill. Even though the chief executive Lam declared the bill “dead,” protest rallies have persisted, and have turned increasingly violent.
Fullsun International Holdings Group postponed a sale of the first 30 of 79 apartments at its La Salle Residence flats in Kowloon Tong, citing “a change in market sentiment”.
“Overall home sales in late June has obviously slowed down,” said Ricacorp Properties’ research head Derek Chan.
Most of the flats that are left empty are luxury abodes, defined as those that cost at least HK$20 million (US$2.56 million), said Chan.
Some developers have slowed their construction speed as the inventory rose, with commencements shrinking by 26 per cent to 1,700 in the three months ended June, the slowest quarterly pace since the third quarter of 2017.
“It is worse than expected,” said Thomas Lam, executive director at Knight Frank, which said home price could drop 5 per cent in the second half of this year and high supply could weigh on prices.
Chan of Ricacorp said the sharp fall was because the developers needed time to change the layout of large flats to smaller sizes to sell faster ahead of the imminent imposed vacancy tax and wanted to focus on selling accumulated stock.
Chan warned that the number of homes that started construction could dive further as the amount of land that the government can offer to sell is “diminishing”, adding the situation in future will be even more “dire”.