Use stamp duty windfall for those priced out of property market

Albert Cheng says the administration could use the hefty increase in revenue to speed up public housing construction and as a rent subsidy

PUBLISHED : Friday, 08 March, 2013, 12:00am
UPDATED : Thursday, 07 May, 2015, 12:48pm

The inflow of hot money in recent years has fuelled speculation in the local property market, pushing up prices and making it impossible for many Hongkongers to get on the ladder.

As a result, a lot of these people are forced to pay high rents or live in undesirable and unsafe conditions, including in subdivided flats. To most young people nowadays, owning their own home one day is an unattainable dream.

To solve our housing problem, the Housing Authority needs to speed up plans to build more public housing flats. In the past, the authority used the money it made from the sale of Home Ownership Scheme (HOS) flats to fund the construction of public flats.

The authority has plans to restart the HOS in 2016, but, still, like the Chinese saying goes, "you cannot fight a fire with water from far away". The issue needs to be tackled now.

The government is not expected to meet the target of building 15,000 public housing flats annually over the next five years. In fact, it is likely to try to abort the programme by saying there's a shortage of funds.

That way, it wouldn't have to shoulder responsibility for Hong Kong's housing problem and could allow rich and powerful private property developers to monopolise the market.

To curb speculation in the property market, the government has targeted foreigners and mainlanders by imposing on them a buyer's stamp duty, as well as an additional stamp duty for some transactions. These new taxes, which are no different from fines, are essentially punitive measures to discourage speculation.

The revenue collected from these new taxes must be channelled back into the community and used to resolve urgent social issues.

The money could be used to help the Housing Authority speed up its construction of public housing flats.

In the short term, it could be used as a form of rent subsidy to help alleviate the heavy rent burden on those queuing for the public housing.

The government often tries to play down the amount of revenue it collects from property stamp duty. According to the Inland Revenue Department, the amount of tax collected from property stamp duty totalled HK$24.5 billion in 2010/11. This dropped to HK$20.4 billion in 2011/12.

But, of course, the extra revenue collected from the additional stamp duty will not be reflected in the books until this financial year, or even the next one.

Take, as an example, a luxury apartment costing HK$10 million. If the buyer is a non-Hong Kong permanent resident, he or she will have to pay an ad valorem stamp duty - a tax based on the value of the property - of 7.5 per cent, which is double the old duty.

Furthermore, non-Hongkongers also have to pay a 15 per cent buyer stamp duty. Under the new stamp duty system, the amount of tax collected in this case would amount to HK$2.25 million instead of HK$375,000 under the old stamp-duty regime.

This example shows that the tax collected could be six times more than in the past.

Apart from residential flats, the new stamp-duty system also applies to the sale of commercial units and shops.

Unless the property market suddenly nosedives and hits rock bottom, which is highly unlikely in the near future, the new stamp-duty regime will certainly bring in a huge amount of extra revenue.

Hence, the government has no excuse for not funding the building of more public housing flats in the coming years.

As long as the government continues to maintain a high land-premium policy and controls the supply of land, hot money will continue to flow into Hong Kong, targeting our property market. So no matter what anti-speculation measures there are, speculative activities will remain rampant.

These punitive measures, aimed at cooling the market, have little effect, but have turned into money-making tools for the government. The extra income should be put back into the community as rent subsidies to directly help those in need.

Chief Executive Leung Chun-ying's order to control the sale of baby formula has raised a few eyebrows in the central government. Beijing officials criticised the move for hurting the core values of Hong Kong's free economy.

In fact, the infant formula was just a trigger point. The central government knows full well the importance of maintaining a free economy for Hong Kong. Leung's so-called tough measures to cool the property market have also angered a number of foreign business chambers in Hong Kong.

Can Leung reverse the tide and make good of these bad measures and use the money gained from these punitive taxes to benefit the general public? It all depends on whether he has the willpower and political intelligence.

Albert Cheng King-hon is a political commentator.