Hong Kong: Vacancy Tax update

The Hong Kong authorities are pushing for a vacancy tax on developers for unsold completed units that are more than 12 months old. The new bill proposes a flat tax rate of 200% on the units estimated annual rental value; this would imply a 4% average annual tax based on current market yields.

Our thoughts: While the gazetted framework takes time to pass through the Legislative Council, the move alone is not likely to solve the housing shortage issue as there is a significant portion of unsold units as luxury residential which are not affordable by the mass market. These luxury units would normally take longer time for the market to absorb. Given the proposed heavy penalty, the absence of an appeal mechanism and without a sunset clause, local developers are expected to oppose the vacancy tax.

Singapore luxury market sales hits a decade high from Chinese demand

Sales of luxury apartments in Singapore worth at least S$10 million have hit an eight year high with 68 units sold year-to-date and led mainly by Chinese mainland buyers.

Our thoughts: Despite hefty additional foreign buyer stamp duty costs (20% of purchase value), many Asian high net worth investors continue to consider Singapore as an asset safe haven with its non-existent capital gains tax, no estate duties and relatively stable political and economic environment; all of which would out-weigh the additional upfront tax costs. Furthermore, the city state is seen as within easy reach given its 7-hour flight radius covers most major regional hubs. Going forward, our expectations are for the luxury market to continue witnessing keen foreign investor interest given the regional uncertainty overhang.

Japanese land prices continue to recover

Land prices in Japan rose 0.3% YoY in July, the second straight annual recovery witnessed after the 0.1% growth seen last year in the latest survey conducted by the land ministry.

Our thoughts: The recovery was driven partly via commercial land price inflation witnessed nationwide with prices rising 1.7% YoY compared to 1.1% last year, propped up by the low interest rate environment and demand for hotel and office assets; the booming tourism industry has been factor driven foreign investor interest into the hospitality sector. For residential, land prices fell 0.1% YoY in the same period, a deceleration when compared to the 0.3% decline seen last year. Going forward, expect land prices to continue improving given the continued supportive interest rate environment and healthy investor appetite.