• Tue
  • Dec 23, 2014
  • Updated: 10:00am
My Take
PUBLISHED : Friday, 16 May, 2014, 3:03am
UPDATED : Friday, 16 May, 2014, 3:03am

Property market still open to loopholes

Few people disputed the need to cool the bubbly property market last year. But the way the government goes about it has been less than rational.

For once, our lawmakers are on the mark in their criticism even as financial services chief Chan Ka-keung tried to appease them by offering concessions on a bill before the legislature to confirm last year's doubling of stamp duty.

Here is an obvious loophole, which the government refuses to close.

If you buy several flats under a single contract, a waiver for the doubled stamp duty may be granted for all the flats.

Now you can't do the same with parking spaces. If you buy more than one parking space, you get no waiver even if you buy them all at the same time. This shows the government recognises a loophole.

Granted, it's not a big one.

The waiver only applies if you are a first-time flat buyer or own no property at the time of the purchase.

Not many speculators meet those conditions. But nothing stops them from using close relatives or trusted associates as fronts.

Chan said granting a waiver on only one property per transaction would be "very complicated". Really?

Another bone of contention has been the six-month deadline to qualify for a refund of the doubled stamp duty if you sell your only home then buy a new one, now extended by a few months as a concession.

First-time buyers also qualify for the refund. Such waivers for buyers of uncompleted flats may extend up to three years.

Now suppose you want to upgrade to a nicer flat from your old one. Why should you be pressured to make a purchase within, say six to eight months? It's your natural right to take your time to make what is for most people one of their most important life decisions.

There are, of course, obvious and direct means to crack down on speculation: start a capital gains tax and a tax on unoccupied flats and undeveloped land held by large developers.

Yet not only officials but many Hong Kong people - more than half of whom own their own homes - are biased against such taxes so they are not even on the cards.

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impala
Oh and while irrelevant to a policy evaluation discussion, my own housing needs are very well taken care of, thank you very much.

Nobody except speculators is looking to buy a house on the cheap. People just want to be able to buy something that is a single digit price-to-income range, not in 14~15 price-to-income range we are at now. It is a disgrace that people are expected to surrender half of their incomes for 30 years in order to own a home. And that is excluding interest, and let's not even talk about the size and quality of those homes. And then there is the fact that home ownership in Hong Kong is actually a pretty bad idea from start to finish since all you own is a share of a depreciating bunch of concrete, while the real scare asset (land) will revert back to the government after 50 years.

Housing is central to people's quality of life, and making its affordability dependent on overseas interest rates is a ludicrous thing to do. It is yet another example of where the HK government is massively failing to produce decent policy in the interest of the people it is supposed to be so benignly in charge of.
impala
Such a loophole is only the tip of the iceberg.

The government's strategy in attempting to stop house prices from rising is completely irrational indeed. If you want to use taxes to achieve this, you should be imposing a capital gains tax, or you could reduce the present value of properties by taxing (future, expected) rental income or other utility that comes from property.

Imposing or increasing a transactional tax like stamp duty is a very stupid way of trying to achieve price drops (or reduce price rises) in any market. The only thing you can expect such a measure to do is to artificially suspend demand while reducing market volume, thereby further distorting the price seeking mechanism. It does not address the supply side of the equation at all, and it leaves people locked out of the market. They may be able to afford the property, but not the transactional tax needed to buy it.

Sadly enough, this is another example of how our highly-paid government officials don't understand basic micro-economic principles, let alone the hallmarks of successful policy making.
HK-Explorer
The government measures have indeed worked. They bought time for interest rates to increase and for the availability of new flats to increase. Now it is just a wait and see to when the US government will increase interest rates.
If they had put on a capital gains tax on HK property it would have been disastrous as once implemented it could never be removed.
With the current method when interest rates & new houses increase government can slowly remove the temporary measures with the double stamp duty. Long term this is a much cleaner method.
Impala / Johnyuan must not be HK home owners and are making suggestions for which they will see house prices fall massively. They have this misguided belief that at some point they will be able to buy a dirt cheap home. But as SARS has taught everyone when prices drop massively no one buys.
johnyuan
To imp...
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I agree.
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Hong Kong general publics when well understand what capital gain tax on property is including its exemption, no one except property speculators and property developers would oppose it. Well the Hong Kong government is not using such tool to normalize property market because it still depends on property for its revenue especially for the civil servants’ colossal benefits and pension fund. CY Leung is only measurably tackling a runaway property market that was even unfavorable to the local speculators. Just a month or so ago he made a statement that housing shortage is over.
Property in Hong Kong is treated like gold that it is a means to make money. When the price is sliding there is no buyer. But housing is not gold. Cheap housing can free up money for productive purposes. Hong Kong locks up money in property if you are not LKS who knows how better to use it and comes out a winner.
johnyuan
I believe CY Leung’s double stamp duty has timely stopped luxury flats buying from mainlanders. It is despite any loopholes, the success in large part due to the timing in a change in mainland shortly after the rule was implemented.
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Without Xi Jinping’s call for caching tigers and flies and later suggesting a worldwide tax for Chinese citizens, the double stamp duty property in Hong Kong would fail as property in Hong Kong still looks cheap and essential in hiding deep pockets gained from colossal corruption money in mainland.
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The issue for the loopholes is why they exist which are so obvious that they could be avoided in the formulation. I believe the loopholes are purposefully planted to placate the powerful developers and local speculators.
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The double stamp duty should remain in force even for local property speculators if the successful US capital gain tax on property speculation which is fair to everyone is not implemented in Hong Kong. Looks like CY Leung has laboriously avoided it.
impala
Nearly every other advanced economy has a capital gains tax on real estate. There is nothing disastrous about it. It could never be removed? Apart from not seeing why it couldn't be removed or adapted or waived if extreme circumstances would call for this, the point remains that a CGT is the single most logical way to curb rising prices if that is what you want to achieve with fiscal policy.

Why would stamp duty have to be removed anyway? Does the government have some duty to support home prices on the way down? I would say that the government should stop politicising the housing market and its constant manipulation of it. What would help is more long-term stability and rationality in our housing market, not the 7~14 years roller-coaster pattern.

CGT is only paid on gains, not on losses. If prices were to start falling (more), there is no CGT in play at all, especially if it had been introduced at the high watermark that was last year's property market. CGT acts as a brake on price rises, not as an accelerator for declines.

It also reduces property speculation and shifts the burden of tax from buyers who are trying to get a home to sellers who are realising a gain in the value of their property.

This (reducing speculation, curb price rises) is exactly what the government claims it wants to achieve. It is therefore astonishing to then see them get the wrong tool out of the toolbox.
 
 
 
 
 

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