Hong Kong Luxury Condos Enter Leasing Market to Minimize New Vacancy Tax

According to global property consultant JLL's the latest Hong Kong Residential Sales Market Monitor report, about 1,500 luxury units (Class E flat, saleable area of 1,722 sq. ft. or above) will come on stream over the next 30 months. To minimize the impact of the new vacancy tax, developers are likely to switch more unsold luxury flats from the sales to leasing market.

At the end of June 2018, the government announced a new vacancy tax, levied at 200% of the rateable value -- twice the annual rent, which under current market conditions translates to about 5% of the property price -- of units unleased or unsold one year after the issuance of the Occupation Permit. In addition, developers will also be required to launch no less than 20% of the units highlighted in the pre-sale consent application at each turn of sales, regardless of the sales method.

Sun Hung Kai Properties is among the first to initiate the switching of units from the sales to leasing market, revealing plans to lease out all 140 units in Tower 6 (about 20% of the total units) at "Victoria Harbour" in North Point as serviced apartments following the announcement of the new tax.

Henry Mok, Regional Director of Capital Markets at JLL commented, "Given the increased pressure to offload luxury stock in the short term and recent improvements in leasing demand, we anticipate more developers will put unsold stock for lease to avoid the tax, especially those in non-core luxury residential areas. However, this trend is likely to be more evident in the top-end of the market since luxury properties typically take a longer period of time to sell."

Cathie Chung, National Director of Research at JLL added, "Developers of unsold luxury flats in the New Territories are more likely to consider switching units over to the leasing market given that 56% of all new future luxury flats completed over the next 30-months will be located in the New Territories. New schools in the New Territories, including the opening of Shrewsbury School, Malvern Collage and French International School earlier this year, should also give the leasing market a boost. All in all, we expect luxury rentals to remain steady in 2018, though the increase in availability is likely to gradually weigh on rents."