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Excluding mainlanders won't allay main property grievance

The major complaint is that the 30 per cent down payment is just too high for many first-home buyers to get into the housing market

PUBLISHED : Monday, 29 October, 2012, 12:00am
UPDATED : Tuesday, 30 October, 2012, 10:08am

On Friday evening Financial Secretary John Tsang Chun-wah announced two new punitive property tax measures aimed at "maintaining a healthy, stable property market".

Firstly, the government jacked up its two-year-old special stamp duties by 5 percentage points. From now on, anyone selling a flat within six months to a year of purchase will have to pay an extra 15 per cent stamp duty on top of the standard rate; 20 per cent if he or she sells within six months.

Secondly, all individual buyers of residential properties who are not Hong Kong permanent residents, and all corporate buyers, will be forced to pay an extra 15 per cent "buyer's stamp duty".

The first measure is intended to deter speculators from flipping their flats for a quick profit. The second is aimed at shutting mainland buyers out of the Hong Kong market.

"I would like to emphasise that the objective of the two new measures is to help alleviate the demand for housing by according priority to meeting the needs of Hong Kong permanent residents," explained the financial secretary.

First, despite what Tsang says, there is no housing shortage in Hong Kong.

Around 30 per cent of the city's households rent flats at heavily subsidised rates from the government. Another 16 per cent have bought subsidised flats through government schemes.

The biggest segment, 36 per cent, own their own homes in the private sector. Most of the rest, another 16 per cent, rent from private landlords.

What's more, there is plenty of vacant housing. At the lower end of the government's estimates there were 48,000 private sector flats sitting empty at the end of last year. At the rate developers have been building recently, that's around four years' supply. At the upper end of estimates, there were more than 200,000 vacant flats.

So the demand Tsang is talking about is not for property to live in - there's plenty of that - but for property to invest in.

And here there really is a shortage. With bank deposit rates at least minus 3.5 per cent in real terms and mortgages available at interest rates below 3 per cent, anyone with spare cash has a powerful incentive to buy property as a store of value.

That's pushed up prices. Since the end of 2008, Hong Kong flat prices have risen 53 per cent (see the first chart). According to Tsang, small and medium-sized flats were up 21 per cent in just the first nine months of 2012. As a result, thousands of would-be first-time buyers who can't afford the 30 per cent down payment required for a mortgage have been shut out of the market.

The government's latest measures won't dispel their grievances. Increasing the special stamp duty on quick sales won't make any difference. Very few people were buying to flip in any case, and with prices rising so quickly, an extra five percentage points won't put off the handful that were.

Shutting mainlanders out of the market with a punitive tax on non-resident buyers won't help much either. According to Tsang, non-residents made up only 6.5 per cent of buyers last year.

In any case, excluding non-residents will do nothing to solve the main cause of complaint: that the deposit needed to get a mortgage on even a modest flat now stands at almost three-and-a-half-years of median household income.

And the reason the down payment is so steep is that the government - in the form of the Hong Kong Monetary Authority - jacked it up in order to provide mortgage lenders with a comfortable cushion in the event of a drop in property prices.

In short, it is the government's deliberate policy to make flats prohibitively expensive for Hongkongers who don't already own their homes in order to protect the city's banking system from a potential increase in bad loans.

Friday's tax increases don't do anything to change that.

tom.holland@scmp.com