Developers in Hong Kong will be pushed to build smaller units as a result of a new tax.
The upward march of house prices will moderate in the second half, according to JLL's mid-year 2018 Hong Kong property forecast, after the Government implemented a new vacancy tax and curbs on the Pre-sale Consent Scheme. Nonetheless, house prices are expected to rise another 7% in the next six months. Developers will most likely design smaller flats to ensure a high sell-through rate. Over the last six years, the average size of new flats has shrunk by almost 40%.
Smaller units, more reasonable pricing, and developer financing have all led to robust sales in the primary market in the first half, with most new developments selling over half of their units. properties
The government unveiled six new efforts to solve the city's housing problems towards the end of June. The much-discussed vacancy tax for the primary market was one of them. At the end of 2017, the Transport and Housing Bureau reported that there were 9,000 empty units in the primary market. The proportion of empty units in the primary market as a percentage of total vacant units in the market has risen from 8% in 2012 to 21% in 2017.
As a result of the increased tax, developers are expected to build smaller units to offset the higher development risks. This will help keep lump sum payments affordable and sell-through rates high. So far this year, the average size of apartments under construction has reduced by 40%, from 1,022 sq ft in 2013 to 600 sq ft.
The government's choice to launch new efforts to address the city's housing problems at a time when interest rates are rising and the current market cycle is nearing its end has dangers. When the market does turn, all of the recent cooling measures might worsen any collapse, resulting in a market freefall. Furthermore, a growing number of buyers are relying on developer financing, which carries higher interest rates and does not need buyers to pass a stress test. In the event of a market downturn, developers may face difficulties due to the high holding costs associated with the vacancy tax. In these circumstances, the government should carefully consider these cooling measures.
The Land Supply Task Force, which was established by the government to address Hong Kong's long-term housing issues, released its report and recommendations in April on how to resolve the scarcity of land supply in the city. More land reclamation was one of the recommendations. However, land reclamation can only produce 490 hectares of land supply, and it will take a long time to finish the job and ready the area for development. JLL's Managing Director, Joseph Tsang, advised that the government focus on the 760 hectares of brownfield properties strewn throughout the New Territories that the government has yet to pursue. Brownfield sites will be a more cost-effective and time-efficient way to provide land supply than land reclamation.
Tsang remarked, "Developers would use a more careful pricing strategy in new luxury launches as a result of the increased tax to ensure that all units are sold. Given the continued demand for smaller units, mass residential projects, on the other hand, are anticipated to be less affected. To offset the higher development risks posed by the new tax, developers are expected to be less aggressive when competing for sites in the future. Reduced land prices, on the other hand, may or may not translate into lower house prices, depending on market sentiment. We expect the run-up in home prices to slow in the second half, owing to impending interest rate hikes and increasing volatility in equities markets. Housing prices grew 8.6 percent in the first half. Nonetheless, property prices are expected to rise by 10-15% in the next few years ""It has been one year."