'SOFT landing'

A year after the implementation of the special stamp duty (SSD) on residential properties at the point of resale, Financial Secretary John Tsang Chun-wah says the property market may have achieved a 'soft landing'.

Though second-hand deals are slow, quality new projects are selling well, such as The Wings in Tseung Kwan O by Sun Hung Kai Properties, and Festival City in Tai Wai by Cheung Kong.

Speaking in the Legislative Council, Tsang does not want to see home prices fall sharply. He says: 'Transactions have fallen a lot, though prices have not weakened to satisfaction. But this may be a soft landing in prices, which is not bad.'

The SSD is a hefty 15 per cent tax if buyers dispose of or transfer a property within 24 months from the date of acquisition. The impact of the tax in curbing short-term speculative activities has definitely been successful.

According to undersecretary for transport and housing Yau Shing-mu there were on average 85 subsale cases per month in the first 10 months of this year, compared to 320 subsale cases per month in the first 11 months of 2010. This is a fall of more than 70 per cent since the SSD implementation.

However, residential property transactions have dropped 34 per cent to about 75,000 in the first 10 months of 2011 compared to the same period last year. The second-hand residential property market registered about 67,000 transactions, a drop of about 34 per cent. The overall residential property price index showed an increase of about 13 per cent in the first nine months of this year. The index has been falling since June, and has dropped by 2 per cent in three months.

Patrick Chow Moon-kit, head of research at Ricacorp Properties, says the outcome has been different to what he expected.

'I see a 'soft' landing as the price re-adjustment takes place slowly but surely. It's good news for end-users because buyers no longer vie with speculative investors and they have more time and choices now. For those whose financial situation is strong, they may enter any time and the right time is now for the sake of wealth protection. Surprisingly, record-high transactions are regularly observed in luxury properties all over Hong Kong.'

Not all parties see SSD as the only reason for the slower market. Thomas Lam Ho-man, Knight Frank's head of research for Greater China, believes the SSD is only partially responsible for the sluggish market in the past six months.

'Shortly after its implementation, we also faced a weakening global economy and volatile stock market, which dampened transactions,' he says. 'Banks also tightened their loan-to-value ratio. To end-users, SSD has no impact, but property prices are way too high, so buyers are adopting a wait-and-see attitude.' Lam says a surcharge has only been paid on 50 to 60 transactions since the introduction of SSD. Most transactions were priced from HK$2 million to HK$4 million.

'Instead of a second-hand market, investors flocked to the first-hand market because of incentives offered by developers, such as interest free and second mortgage loans. These involve less capital and financial risk is shifted to developers. Meanwhile, low interest rates have led to sellers' reluctance to sell at low rates.' Lam says SSD led to some buying interest shifting, especially from residential to industrial/commercial properties in order to avoid the SSD.

Lam wants an amendment to the SSD such as to shorten the number of years or lowering the tax percentage.

He adds: 'I don't think the government will take SSD off as property prices have not plunged drastically. Now may be a high time to evaluate the situation before the next big thing happens as their policy might have difficulty catching up with the market pace with a delay of six months or so. For instance, SSD should have been rolled out before November 2010, especially during the bullish period.'

Hong Kong Property's senior executive director, Jeffrey Ng, says SSD clearly drives down short-term investment. 'There is no doubt about the impact of the SSD,' he says. 'The formula is right, but was it too heavy for innocent buyers who want to change to bigger new homes, or cash in the property in case of emergency? The market should be governed by supply and demand. SSD does more harm than good as well as paralysing the overall residential market.'