【Property】Mixed reactions on HK’s new stamp duty

Investors and speculators are looking for investment alternatives or means to escape a new stamp duty after the Hong Kong government more than doubled the residential property stamp duty in November, the second hike in three years, to rein the city’s rocketing property prices.

Under the new policy, non-first-time buyers have to pay a 15 per cent stamp duty in property transactions, triggering a chain of reactions, for instance, developers suspended launching new property projects that is expected to fan the rental of flats. Speculators are also looking for other investment opportunities as the cost for investing in property has inflated.

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The property agencies use different slogans to promote

the car parking space as the new target of speculators.

Small and medium-sized flats led housing price rally

Home prices in the world’s least affordable city of Hong Kong have been rallying in recent months. According to Rating and Valuation Department’s private domestic price index, which tracks the changes of private units’ selling price, rose for the eighth consecutive months in October to 303.8 points, near the record made in 2015. The index increased 8.7 per cent over the year, led by small and medium sized home prices.

Dr. Lawrence Poon, Senior Lecturer of Division of Building Science and Technology from City University, pointed out that the new policy can effectively stabilize the home price and crack down speculations on the small and medium sized home market, which is the engine for skyrocketing housing prices.

Comparing to the previous 1.5 percent to 8.5 percent tax rate, new double stamp duty for non-first-time buyers jumped to 15 percent for individuals and corporate buyers. For instance, a $6 million property has to pay $900,000 of tax, or 2.5 times of the original tax.

Major developers halt new flat sales

After the cooling policy came into effect, major developers including Sun Hung Kai Properties and Swire Property suspended sales of flats in a total of nine property projects. Sun Hung Kai Properties issued a notice suspending sales of flats at six projects – Ultima, Grand Yoho, The Cullinan, Twelve Peaks, Ocean Wings and Twin Regency, almost half of which are small and medium-sized. Besides, Henderson Land Development, New World Development and Swire Properties also have one re-launch project each that are being held off. The spokesman of Swire Properties said, “it was not a ‘good time’ to launch the remaining units.”

Since many developers have postponed sales of their projects and non-first-time buyers are pondering the impact of the new tax policy, the supply of flats for rental is being affected. The number of rental housing has decreased significantly after the implementation of the new tax, according to information from Centadata.

Joe Hoi, Managing Director of Nation Land Group said as the total burden on housing expenditure would be heavier, it was expected that the rental of flats should rise in the near future. Recently, a 495-square-feet unit in Discovery Park comprises of two bedrooms made a record of renting for $16,800 per month, representing $34 per sq. ft.

Can the new policy cool down soaring home price?

Mr. Wong, a fresh graduate student, believes the real estate bubble in Hong Kong needs to be addressed. He thinks Hong Kong’s home prices have surged to an unaffordable level so the government should increase land supply and provide more public rental housing units in the long term.

Dr. Poon predicts the private residential property price may fall 10 to 15 percent in near future and government’s new measure can be one of the factors. “In a time of economic downturn, the retail industry declines continuously and unemployment rates may rise. Moreover, the United States will raise interest rates soon and financial markets will suffer from fluctuation. All these impacts will lead the decline of property prices,” he added.

However, a two-properties owner, Ms. Tse, holds opposite views. She believes the home prices will not necessarily decline in the coming year because there is still a huge demand in housing market, partly supported by the capital inflows from China that will not shrink easily. Tse decided to hold a wait-and-see attitude.

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The experts predict the private home price will fall 10 to 15 percent under the new policy.

Speculators shift to other investments

Under the new tax policy, speculators are shifting their investment allocation.

Car parking space has become one of the alternatives. Recently, Laguna city Parking space recorded at least 12 transactions. One of them was sold at 2 million with a paper gain of 0.9 million, breaking the car parking space record of the private housing estate.

Thomas Lam, Senior Director and Head of Valuation & Consultancy of Knight Frank, estimates, ‘‘more money will flow to overseas properties, office buildings, commercial sites and parking spaces. As the cost of parking space is comparatively low so it’s very popular among transiting investors, therefore, its price will rise in the short term.”

Some speculators are trying every means to skirt around the new stamp duty. For instance, purchasing several properties in one contract by one first time buyer, then all of the units involved in sale and purchase agreement are considered as a 「single」 transaction so all properties can escape the new stamp duty. Some others use the names of their family members or relatives, who are first time buyers, to buy properties so they would not subject to the new tax.

Secretary for Development, Paul Chan, admitted that it is difficult to block all possible ways to escape the new stamp duty by legislation but the government will continue to monitor the market condition.

Reporting by Wendy Cheung

Editing by Joyce Zhou

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