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Hong Kong stamp duty

Risk of property price bubble justifies new stamp duty

PUBLISHED : Thursday, 15 November, 2012, 12:00am
UPDATED : Thursday, 15 November, 2012, 2:35am

Our government should be given credit for recognising the dangers of Hong Kong's property price bubble and doing something about it.

It learned from the 2008 global financial crisis and the post-1997 Hong Kong recession that nothing is more systemically damaging to the economy than property market crashes. Property is the single biggest investment most people make and their largest store of savings.

Property crashes affect everyone. Conversely, the current property bubble is the main driver of the city's inflationary pressures. Something had to be done.

Criticism of the government's intervention comes in three forms. People such as Philip Bowring bemoan Hong Kong forsaking free-market ideals ("Property tax not worth the price", November 4).

This argument would have merit if Hong Kong were indeed a free market. But the government controls land supply, and turns a blind eye to money laundering and market-distorting manipulations that would make a securities regulator cringe, and the tender system reinforces the property oligopoly.

The second criticism comes from aggrieved Hong Kong residents and non-residents who must now pay additional stamp duty to buy property. (They are not precluded from purchasing property and there are already stories of property developers discounting prices to subsidise the stamp duty cost, suggesting prices were needlessly high.) Purchasing restrictions are not uncommon. Singapore has a tax and China, Thailand and Indonesia among others restrict purchases by foreigners.

These are not normal times and foreigners working here are lucky to be able to enjoy Hong Kong's stable economy, world- class infrastructure, safe streets and inexpensive, world-class medical care.

These services have been paid for over several generations by Hong Kong citizens and permanent residents. Pay your dues in the form of taxes for seven years and you are allowed to become a permanent resident too.

The third criticism is that the stamp duty won't work and that there are better ways to solve the problem. These include freeing up land supply or recognising the cost imposed upon society by those who hoard vacant flats and undeveloped land and imposing heavy tax penalties on them.

However, this may be a step too far for our government at the moment, so controlling our property bubble through additional stamp duty will have to do for now. This is better than allowing the bubble to continue to inflate.

Keith Noyes, Clear Water Bay