Additional rates significantly increase development risk

Additional rates significantly increase development risk

The Government is about to introduce the Bill into the Legislative Council on additional rates (vacant tax) and has carried out an explanation campaign to support the passage of the Bill. The Regulations on the sale/rental time operation arrangements for residential property development represent the development of real estate developers’ associations in the commercial sector. The framework of the taxation proposed by the Chief Executive in June last year (including the vacancy period for first-hand residential properties which was started after the developer has obtained occupation permits for one year) has had a strong expectation effect on the market. The specific details of the legislation are now being dealt with. Effective time.

The supply of private residential land in Hong Kong is mainly provided by the Government, including government land sales, land lease/land exchange and MTR development projects. The supply of residential land redevelopment projects with old deeds has become less significant in recent years. As this tax will greatly increase the risk of developers, land prices are naturally subject to downward pressure, affecting the government’s land sales and land premiums. In order to achieve the policy objective, the Government can deliver the first-hand residential units that have obtained the occupation permit paper to the users as soon as possible, which indirectly causes the value of the land to fall. After the regulations are passed and effective, the additional rates charged by the government will be partially dissipated. Land value.

This tax system poses a major challenge for residential developers. Developers must raise high prices (higher than competitors) in order to obtain development land, face the threat of additional rates at the time of sale, and the uncertain time factors for obtaining sales and transfer approvals for new leases. The Government often reminds buyers of residential units to pay attention to the possibility of reversal of the market environment. These reminders can also be applied to the residential land development market.

Land development is the main business of developers. It is necessary to seek profit opportunities in the context of taxation environment changes and increased risks. It is also necessary to manage/control risks, and the difficulty is naturally high. If the market conditions go down, the price of selling residential units will go down, the sales rate will slow down, and at the same time the burden of paying extra rates will be met, which can become a three-sided attack.

In order to obtain sales and transfer approval for residential units that sell new land, these approvals bring uncertainty to the sales schedule and increase the risk. When the sales approval directly affects the timetable for the entire sales arrangement, including the pre-sale time before the occupation, the longer the pre-sale time helps mitigate the development risk, giving the developer more time to choose the best sales time and lock the sales result as soon as possible. . The approval of the transfer or the issuance of the satisfaction paper depends on the completion of the land lease contract, which affects the time when the actual residential unit is handed over to the unit buyer and the developer’s receipt of the sales proceeds and credits.

In the case of newly approved land, the approval of the occupation paper is not equivalent to the completion of the entire residential unit sale process, and the general transfer approval or satisfaction paper is available three months or above after the occupation paper is issued. The development of new residential buildings built on the old land leases has not been restricted by these sales and transfer approval requirements, and the development risk is relatively light. It is also because of these differences that there are opinions asking the Government to obtain the transfer approval/satisfaction paper date instead of the occupation paper as the starting basis for calculating the vacancy period.