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  • Aug 22, 2014
  • Updated: 11:50am
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PROPERTY

Opposition to Hong Kong property stamp duty rise grows vocal

Activist David Webb says duty flouts Basic Law as it undermines the 'previous capitalist system'

PUBLISHED : Monday, 08 July, 2013, 12:00am
UPDATED : Monday, 08 July, 2013, 4:46am

Interest groups are increasingly expressing their opposition to the government's plan to double stamp duty on property transactions.

The Canadian Chamber of Commerce on Wednesday hosted a panel discussion that rejected the need for the tax increase. Participants objected to the proposed increase in duty because companies buying office units for their own use would be affected.

The issue gained attention yesterday when thousands of real estate agents and workers in the property-related industry, such as interior decorators, marched to the government headquarters at Tamar in Admiralty to protest against property market curbs they said had affected their livelihoods.

Since the government said in February it would double stamp duty on purchases of residential and non-residential property valued at more than HK$2 million, sales of commercial properties have fallen more than 80 per cent from their February peak.

Corporate governance activist David Webb said doubling stamp duty on purchases of commercial properties was a "volume suppression" measure, adding that higher transaction costs reduced economic flexibility.

Speaking at the Canadian Chamber of Commerce's panel discussion, Webb said the proposed doubling of stamp duty was unconstitutional and bad policy, adding that it might punish people for exercising their Basic Law right to acquire, use and dispose of property, as enshrined in Article 105.

"How is it constitutional to penalise people for exercising their Basic Law rights to transfer property, the exercise of which causes no demonstrable harm to society?" he said.

Article 5 of the Basic Law says that "the previous capitalist system and way of life shall remain unchanged for 50 years" and Article 11 states that "no law enacted by the legislature of the [HKSAR] shall contravene this [Basic Law]".

Webb said the administration was seeking to modify commercial behaviour by imposing deterrent taxes on transfers of property, without any public benefit.

"How is this proposed law consistent with the 'previous capitalist system' in which buyers, owners and sellers were free to take their own risks without paternalistic intervention by the state?" he said.

Increasing stamp duty across the board could bring transactions to a halt, he said.

"That would not mean that properties are worthless, only that they can no longer be transferred," he added.

David Nesbitt, the executive director of the Canadian Chamber of Commerce, said a summary of the presentation at the panel discussion would be sent to the Legislative Council's Bill Committee on Stamp Duty (Amendment) Bill 2013.

"All in attendance suggested that the proposed double stamp duty should be amended and some proposed to remove [the bill] entirely," Nesbitt said.

One suggestion made to the government was considering the example of Singapore, which exempts from extra duty non-residential properties held for more than three years.

Other panelists included Timothy Peirson-Smith, the managing director of Executive Counsel; Richard Kirke, a managing director at Colliers International Hong Kong; Jeremy Sheldon, the managing director for markets, Asia Pacific, at Jones Lang LaSalle; Emily Lau Wai-hing, the chairwoman of the Democratic Party; and Tommy Cheung Yu-yan of the Liberal Party.

Lau said her party did not totally reject the bill but opposed the tax hitting innocent people.

Home prices had risen 120 per cent since 2008 and 34 per cent from their peak in 1997, Financial Secretary John Tsang Chun-wah said in February.

The city is one of the least affordable property markets in the world, with an average home costing the equivalent of 12.6 times an average annual income, according to the International Monetary Fund.

"The expectation of future meddling may itself increase discount rates and reduce the attraction of investment in Hong Kong's economy. That uncertainty would reduce values, but trashing Hong Kong's reputation as a free and open economy is an expensive price to pay for manipulating the market," Webb wrote earlier in a submission to the bill committee on stamp duty.

More than 28 groups had expressed opposition to the bill committee last month.

Trade chambers representing thousands of overseas firms in Hong Kong, accountants, lawyers, surveyors, developers, real estate agents, religious groups and individuals have slammed the extra stamp duty as wrongly targeting companies buying offices for their own use.

The Liberal Party's James Tien Pei-chun, a member of the bill committee, said he would not vote for the bill.

Starry Lee Wai-king of the pro-government Democratic Alliance for the Betterment and Progress of Hong Kong last month indicated her party would vote against the bill if the government did not address certain concerns.

Deputy Secretary for Financial Services and the Treasury Mable Chan said the government aimed to cool the non-residential market immediately by way of demand-side management.

"We need to implement targeted measures while having regard for the prevailing situation in the property market. Adjustment of stamp-duty rates is intended to have an instant effect," Chan said.

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Giwaffe
Webb is correct that increasing transaction costs do not lower prices, but rather make the market more illiquid by reducing volume. The only way for increased transaction costs to lower the price of property is if the illiquid market somehow caused the seller of the property to become nervous, leading him to sell in a hurry by reducing the selling price. Otherwise, there should be no effect.
The aim of all these government policies is to reduce the price level of the property market and increasing housing affordability. A more effective way to achieve this is to increase the carrying cost of property, which has the added bonus of discouraging speculation and replacing investment demand with self-use demand. This could be achieved through higher taxes on property.
Currently, a property worth HKD 5 million pays approximately less than HKD 10k annually in government rates and rents—HK’s equivalent to tax on property—amounting to less than 0.20% a year. For comparison, the average tax on property in Canada, the US, and Europe range from 1.0 to 4.0%. If we were to apply these rates to the example HKD 5 million property, the annual tax on property would increase to HKD 50k to 200k. To fulfill the aim of affordable housing, owner-occupiers could be given a preferential tax rate.
johnyuan
When I make a construction site inspection citing what needs to be rectified, the accompanied contractor would repeat my description of the problem but without admitting it requires to be fixed. Webb acts exactly like a contractor in his article. He has been in Hong Kong for too long to become insensitive to problems wrought by property speculation.
daily
Who gives a hoot to what David Webb says.............he's just some ex I banker in HK trying to make a name for himself by always criticizing...........Shut up Webb.........
donniemcm
Honestly I don't think lot of people will support them except investors and property developers.
It's time HK becomes a place to live and stop allowing people think that property is for making big bucks. Those laws and rules make sense for people who wants a place to live for at least a decade but for those who wants to make money, sorry go somewhere else grunting.
dynamco
Basic Law Article 6
"The Hong Kong Special Administrative Region shall protect the right of private ownership of property IN ACCORDANCE WITH LAW."
The Law was duly amended to impose a stamp duty to stop black money from the Mainland and elsewhere inflating our property prices.
I wonder how many property agents have reported suspect money laundering transactions (zero) or how many jewelers have taken cash for goods and then bought back the goods at a discount with a money order which was then used to buy property, or similar shenanigans in Macau casinos ?
 
 
 
 
 

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