Hong Kong stamp duty

Higher home sales in view as tax falls

PUBLISHED : Thursday, 08 March, 2012, 12:00am
UPDATED : Thursday, 07 May, 2015, 12:48pm


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A breakthrough in secondary-market home sales as the year progresses has been predicted by analysts and agents as the initial impact of the government's special stamp duty wears off, allowing the market to conclude deals faster and also releasing pent-up demand from genuine buyers.

With the introduction of special stamp duty in November 2010 to try to curb sky-high property prices, the government imposed an additional 15 per cent tariff on homes resold within six months of purchase, 10 per cent extra for those resold within a year and 5 per cent for those resold within two years.

The immediate impact was to prompt sellers to raise prices to pass on the extra duty to buyers, deterring speculators but sidelining genuine buyers.

Alfred Lau, an analyst at Bocom International, said he believed the next three months would be critical, as many sellers would finally cross the one-year threshold, and for them, special stamp duty (SSD) payable would drop to 5 per cent.

'When SSD was first introduced back in November 2010, it had an overnight impact, with asking prices being marked up by 10 per cent to 15 per cent in order to cover the tax. As the SSD becomes a rolling issue, every seller moves down the tax ladder over time and the premium they seek will gradually narrow.' Lau said. Analysts and agents predicted that the number of residential transactions would double to more than 7,000 this month from February, and rise more over the next few months. Sales in the secondary market, which account for about four in five of Hong Kong's residential transactions, dropped almost 80 per cent to a 15-year low of 2,703 in January 2012 from 12,608 in November 2010, reflecting the impact of special stamp duty.

Now, analysts and agents said there were already signs that special stamp duty was having less impact.

Last month, transaction volume rebounded to 3,406, although it was still nearly 60 per cent down on the 8,000 monthly average recorded over the past five years. Given the strong economy and low interest rates, Lau said he expected transaction volume to rise to 7,000 this month, and to return to the former average of 8,000 a month in the second half of this year.

Buggle Lau, chief analyst at Midland Realty, estimated that a pool of 30,000 potential home seekers was waiting for buying opportunities.

'It creates a lot of pent-up demand in the market and this buying force will gradually be released over the next three months. So, it will give strong support to transaction volumes,' he said.

For the first five days of this month, 1,037 deals were concluded in the secondary residential market, according to figures released by Midland Realty, equal to about 30 per cent of last month's figure of 3,406 sales. With an improvement in property sales, home prices during the week from February 20 to 26 edged up 0.72 per cent compared with the previous week, according to the Centa-City Leading Index.

Meanwhile, the number of property agents increased to 19,290 last month, up 1.3 per cent from January

However, Paul Louie, regional head of research at Nomura International, said the special stamp duty would continue to dampen investment demand, which accounted for about 30 per cent of total home sales.

'In the absence of investors, sales volume will only return to 70 per cent of their normal level,' he said, predicting that home prices could still rise 10 per cent this year.