PUBLISHED : Monday, 05 November, 2012, 12:00am
UPDATED : Monday, 05 November, 2012, 7:51am

We like discrimination in principle. But will it work?

Many believe that keeping out the outsiders will make property more affordable for locals but don't hold your breath for cheaper homes


As the writer of the South China Morning Post’s Monitor column, Tom Holland attempts each day to make sense of the latest developments in business, finance and economic affairs in Hong Kong and mainland China.

Clearly I'm way out of step.

I've just been looking through what has to be a record mailbag in response to Monitor's two columns last week about the new tax on non-resident buyers of Hong Kong homes.

In a nutshell, Monitor argued that the new stamp duty is a lousy idea on two counts: firstly because it is discriminatory, which is generally a bad thing, and secondly, because it won't do anything to make homes more affordable for local buyers.

Thank you to all the readers who wrote in.

The vast majority of you - almost 80 per cent - obviously believe discrimination is an excellent thing when it's directed at mainlanders who want to buy flats in Hong Kong.

"Hong Kong locals are no match against outsiders," wrote one reader typical for her views (although less so for her admirable concision). "Now the field is nearly clear of outsiders."

A mere 20 per cent thought the new tax wrong in principle. So if, as some cynical observers argue, the imposition of the new tax was just a desperate bid by the administration of C.Y. Leung to enhance its popularity after a bad run of cock-ups, then by targeting mainlanders the chief executive and his team have clearly scored a bullseye.

Curiously, however, although readers thoroughly approved of the new move as a matter of principle, they were less sure about whether it would actually work. Of those who expressed a view about its likely effectiveness, only 60 per cent thought the tax would succeed in making properties more affordable for local buyers. In contrast, 40 per cent said it would fail.

Some think it will fail because mainland buyers will have little difficulty circumventing the new stamp duty on non-residents.

My esteemed colleague Mr. Shangkong has already outlined some of the ways likely to be employed. The most obvious is not to buy the property directly, but rather to buy the company that owns it.

But for any mainlanders considering his third option - getting around the tax by marrying a Hongkonger - I'd suggest it would be cheaper just to pay the extra 15 per cent stamp duty and be done with it.

One inventive reader suggested another way of getting around the tax. He suspects that Hong Kong developers will simply offer non-residents a 13 per cent discount on flats in "luxury" developments targeted at the investment market.

In effect the developers would be paying the new stamp duty on behalf of the buyers. This would eat into the developers' profits. But considering it would mean earning a 22 per cent margin instead of 35 per cent, they would be able to take the hit without too much pain.

It would also bring down headline prices, at least at the luxury end of the market. But given that the supply-demand balance would be unchanged, it would do nothing at all to make buying a flat more affordable for ordinary Hong Kong households.

A handful of other readers are sceptical about the effectiveness of the new tax because they believe the number of mainlanders in the local market has been vastly overstated.

They point out that it has long been in the interest of developers and brokers to exaggerate the extent of mainland demand in order to create an impression of scarcity and feeling of urgency among local buyers.

This past exaggeration, however, is one of the few reasons the new tax might have an impact. If local investors believe - rightly or wrongly - that the new stamp duty will knock large numbers of mainland buyers out of the market, then they will be less likely to buy themselves in expectation of future price gains.

The impact, however, will be relatively small. It will overwhelmingly affect the relatively small numbers of new "luxury" developments being sold at monstrous prices to cash-rich investors.

Few people will shed tears if prices at that end of the market do fall. But for an ordinary Hong Kong household earning HK$40,000 a month, the decline will do nothing to make buying new home any more affordable.


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