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  • Sep 20, 2014
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Jake's View
PUBLISHED : Tuesday, 30 October, 2012, 12:00am
UPDATED : Tuesday, 30 October, 2012, 9:14am

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

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.

jake.vanderkamp@scmp.com

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HK-Explorer
Hong Kong in 1997 housing market crashed because people owed more money than their property was worth. In 2008 the US housing market crashed because they owed more than their property was worth. If someone doesn’t need to sell at a 20% loss like HK 1997 and US 2008 then why would they? If people don’t need to lower prices then there will be no cyclical downturn (i.e. people keep on lowering). Some investors with many properties and already doubled their money may want to get out accepting a 105 downfall to move the money elsewhere but it won’t be that many (they won’t see a downward swing of property). As many Chinese did not buy their houses with $$ they did not legally transfer from China they have no incentive to sell HK property as they probably cannot easily move the $$ back to China and furthermore they probably don’t want to draw attention to their assets by moving them around for no reason (they already like their investments). I keep on hearing people around me saying they will buy a house or a second / third when prices drop. Thus there are many people wanting to buy and just sitting on the sideline. Will they really take their luck and wait for a 30 % drop. No they will jump in a t a 10% drop. The 30% down payment projects HK house prices as people are less likely to walk away from a loss. People in US walked away from a loss and just declared bankruptcy. (won’t happen in HK).
caractacus
Presumably, Jake, you think something should be done to reverse the damage done by the previous administration giving the keys of the Treasury to the property developers?
SpeakFreely
Sorry I have to disagree with Jake. People rushing into the the market is taking their own risk so they are responsible for their gain or loss. hK is suppose to be a free economy? In fact, if you have not own a flat and u want to rush in now you must be a sucker! Excuse my language pls look at 1997 crash or you had never brought stock and got into the market in 2008 hoping the index will hit 45k.
Barring people to buy flat? Again, it is doing good for this people if they don't have 30% down as this is too risky. In fact do you know recently there are more rental demand as some people are selling their home to rent to cash in. Why hurry if you don't own a flat now n jump in?
Mainland investment Immigrant. That's another subject yes if they think price will go up for ever. It is pure investment strategy.
Stamps duty are unfair. So Singapore and Australia are doing it, do they care being accused being unfair or being seen as losing competitiveness ? Fair to who? Please think...foreign investor in fact prefer to have a lower property price as this will reduce their cost of operations unless their focus is in speculation..no brainer. Imagines SCMP or these investment bankers has to pay 1m per month for rent for you guys, if it went up that much, how do they like to invest in HK? Or if won ton noodle is costing $200 a bowl in today's money, will you eat it?
honger
Time to leave the peg while we still have the chance.
Just let the HK$ appreciate naturally for the next few years until it is on par with the RMB. By then the RMB will be fully convertible and the new leading currency in the world.
Otherwise, the city will fall when the bear comes a calling - our huge reserves will not be enough to defend the HK dollar. Coupled with a property and stock market crash, the effects are horrific........
SpeakFreely
Interesting you would see hK$ appreciate and we can still competitive and survive! Hk is so non competitive already with high costs! Also, you are many of those believe when Yuan is fully convertible we will be great. China do well HK do well concept. Wrong, if yuan is floated we are dead! As by them HK has little edge...as china can raise money and do a lot of things directly bypassing Hk....
HK_eh!
perception is 1/2 the battle.
Even if these specific taxes are not fully effective, the fact that the govt is perceived to try to address the problem of high property prices in HK, makes investors/speculators think twice about next/new measures that may be coming.
now if it's only posturing for the masses, while the handshaking favors w/ the property moguls continue on in the background, there's an angle worth investigating.
hybrid713
Cannot agree more. I think the government has sent out a clear warning telling speculators to back off. In particular the ones who wants to make a quick buck at the expense of the quality of living for the hard working citizens of HK. I think this is possibly a preemptive move given the ominous inflow of hot money. There are no perfect solutions but I think this will buy us much needed short-term stability until interest rates / home supply picks up again.
anson
the word **** starts with 'h' and has one 'e' and two 'l'. from the campaign to stop misleading censorship.
anson
Jake, this is your chance to be a hero. If property prices as you say will inevitably fall, then perhaps you can help this along by simply stating 'they will inevitably fall, so don't buy'.
Actually you confuse the hell out of me. It almost seems like you are one of those horoscope writers - something for everyone and nothing 100% right or wrong.
The Master Hedger - Jake - sums it up beautifully in this one paragraph - 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. - is it up or is it down?
Really Jake, you know the main deal is that we need to provide affordable housing for our population. 30% of $1m is much less than 30% of $3m. You do get basic economics, don't you?
SpeakFreely
For those who believe everything will go up are some analyst and even our Asian Buffet Mr. Lee if you all remember predicting HS will surpass 45,000. I made tons of money shorting! I like that. Current property price already very high comparing to salary of HK. ok like my friends arguing places like Tin Shui Wai will cost 10k per sq ft. Ok, that is like another 150% in crease from 4k now. Ok assume this happen, how much is rent, won ton noodle, MTR fees, mobile fees, medical expenses? Etc etc....so if you study economics 101 you will know this will not likely happen even interest rates lower to zero as the world is a global economy. What's that mean? It means people will shop globally and move their companies globally. If HK is becoming so expensive, why would any foreign companies want to base here or foreign investors wants to buy here? Mainlanders are not sucker either as they see the price is unjustified they will see many options in the west. FYI, if you are smart investor, there are many cheap valuable stuff around the world that can increase much more than HK! Give you an example, when HK was dirt cheap in 2003 USA was up 300%. This will repeat soon....if Jake,Tom or some analysts willing to setup an housing future index, I will be the first one to short HK housing...

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