Hong Kong property tax hurts local business more than mainlanders
Tax intended to curb property prices has virtually eradicated mainland investors, with crippling effect on related industries
The unexpected bomb dropped by the Hong Kong government in late October on the city's overheated luxury housing market is akin to America's carpet bombing in the late 1960s of what was then known as communist North Vietnam.
At least, that is how one market watcher describes the government's attempt to curb the city's property prices.
Both actions had little regard, if any, for unintended casualties or victims.
In the case of the Hong Kong government, its imposition of an additional 15 per cent duty on purchases of flats by corporate and non-permanent Hong Kong residents inevitably hurt victims other than the mainland buyers, who are largely blamed for the price spikes.
The levy has virtually removed new mainland investors - who account for more than 40 per cent of new homes worth HK$12 million or more - from the city's luxury housing market.
The result, the market watcher said, was to wipe an estimated HK$19 billion, or 26 per cent of the sales value of flats, industrial and office units and car parking spaces, off the market this month.
But the mainlanders' hasty retreat has also sparked a chain reaction that has put a heavy toll on various businesses that used to live off that mad rush of buyers. They include public relations and advertising companies, which help developers market new projects, hotels where developers wine and dine potential mainland investors and suppliers of food and drink, as well as firms that provide entertainment at such marketing banquets.
A friend, who runs a PR firm focused on the property market, cannot help but complain about the loss of a HK$2 million contract from a real estate developer, involving the organising of a three-day Christmas event for a total of about 500 VIP guests, largely from the mainland.
"We've already booked the venue, but the developer wanted to postpone the function indefinitely after the government imposed that levy," he said.
The VIP guests, comprised of the developer's existing clients and potential new buyers brought in by agents, are mostly big spenders in search of luxury homes in Hong Kong.
The HK$2 million project is fairly straightforward. During the day, the guests are given a tour of the developer's luxury residential projects. Then in the evening, they are treated to a banquet, replete with live entertainment, to celebrate Christmas.
My PR friend has no choice now but to look for non-property clients, such as retailers.
But the retail sector isn't all that bright, either. Budgets of even medium-sized retailers only stretch to a few thousand dollars to retain monthly PR services. "It is about half of what a developer can offer," laments my friend.
The advertising industry is also expected to lose a big chunk of revenue.
For the first 10 months of this year, total spending for the property sector as a whole reached HK$1.2 billion, according to figures from media-monitoring company admanGo.
Developers are expected to cut their ad spending in response to the late-October curbs.
The November figures due out soon will tell the full story of just how much has been withdrawn from the local advertising market.