Jake's View

Hong Kong financial secretary's property moves seen as a bad idea

But there are many reasons why new imposts on buying and selling of property are bad ideas

PUBLISHED : Tuesday, 30 October, 2012, 12:00am
UPDATED : Tuesday, 30 October, 2012, 9:14am

I can understand the difficulty from Financial Secretary John Tsang Chun-wah's perspective. He is a holdover, on approval, from the previous administration and his new boss has adopted a pro-active approach: government will not be passive. Government will do things.

So what is Mr Tsang to do when the crowds are screaming that property prices have gone far too high and it is all the fault of outsiders and speculators? Can he really just twirl his fingers and say, "Sorry, folks, not my fault. Can't do anything about it. You'll just have to grin and bear it"?

No, of course he cannot say this. He must do something. So he does what a chief tax man naturally does and introduces new taxes. There is not much else a chief tax man can do and I understand this, particularly when the chief tax man is a career civil servant not noted for making bold stands.

Let us nonetheless go down a partial list of why higher stamp duties on the early sale of homes and new stamp duties on outsider buyers are bad ideas.

They further expose the Hong Kong public to a property crash rather than offer protection from it. Take note in this context that it is artificially low interest rates that have driven property prices so high, not a shortage of homes (there is actually an oversupply) and not speculators.

Mr Tsang implicitly recognised this when he mentioned that easy money (quantitative easing) is expected to persist in the United States for another three years, thus also forcing easy money on Hong Kong through the official link to the US dollar.

His new stamp duties do nothing to remedy this, which strongly suggests that property prices will continue rising after the usual hiccup while the market adjusts to the new rules. The difference is that this time only Hong Kong permanent residents will be exposed to buying in at prices that will result in them being wiped out when the market inevitably crashes.

Mainland speculators will be saved from this fate from now on. Mr Tsang has kept them out. They will have good reason to thank him in a few years' time.

He has himself barred lower income people from buying their own homes. He did it by earlier imposing a 30 per cent down payment threshold on private property, as my colleague Tom Holland pointed out yesterday.

It is this down payment that constitutes the real cost of buying a home. Once over this hurdle, mortgages are easily carried at present interest rates.

The reason for raising the hurdle was to protect the balance sheets of the banks, which fails to appreciate that bankers who want to risk going bust will always find ways of doing so while bankers who value prudence do not need a financial secretary to tell them what prudence is.

But whatever it did for the banks, raising the hurdle shut many people out of home ownership. This may be fortunate when interest rates eventually rise and the property market crashes but who is a civil servant to make this choice of investment for them?

Mainland speculators can still sneak in through the Capital Entrant Migrant Scheme. This misconceived scheme hatched by the immigration department allows mainlanders in if they can front up HK$10 million for investment.

Property was taken out of the range of qualifying investments two years ago but not to those already on the list, which is years long. The result has been a more than doubling of property investment under the scheme despite the removal of property from it. Mr Tsang has done nothing to close this door.

Using fiscal means to achieve non-fiscal policy objectives risks addicting the public purse to income sources of which it cannot rid itself later. Our government is addicted to gambling income, for instance, and cannot now excuse the Jockey Club from betting duties, nor treat gambling as a social evil without making itself a laughing stock of hypocrisy. Excessive reliance on property income also threatens to put land ownership policies in a straitjacket.

Most of all, these new stamp duties are just plain unfair. They are an invasion of property rights, inviting legal challenges, and are clumsy tools used for a task to which they are not suited.