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Home prices are expected to fall 5 per cent and sales volume plunge by half next month in response to the government's doubling of the stamp duty for those who buy second homes worth more than HK$2 million.
Centaline Property managing director Louis Chan Wing-kit said owners of flats worth more than HK$5 million would be hit hardest by the sharp increase in the stamp duty.
"Flat prices are heading for a 5 per cent correction. Transaction volumes will drop by half," he said.
The new stamp duty will also discourage many homeowners from upgrading to bigger flats, he said. That's because, under the new rules, homeowners are exempt from the new stamp duty only if they can sell their original home and buy a new flat within six months. But that may be too short a time to complete both transactions.
From today, the stamp duty on all properties - homes, offices, industrial units and shops - priced at HK$2 million or less will increase to 1.5 per cent of the transaction value, up from the previous fixed rate of HK$100.
For properties above HK$2 million, the stamp duty rate has doubled from 4.25 per cent to 8.5 per cent of the purchase price. But the revised stamp duty will not apply to local first-time homebuyers.
In addition, non-residential property buyers have to pay the stamp duty when the contract is signed.
The rise in stamp duties comes just four months after the government imposed a 15 per cent additional stamp duty on corporate and non-permanent-resident homebuyers.
Despite those measures, prices have continued to rise. The Centa-City Leading Index, which monitors prices at 100 major housing estates in the city, stood at 121.58 in the week ended February 17, up 6 per cent from October. It hit a record 121.73 the previous week.
"A dramatic decline in property transactions will adversely affect the operation of estate agents who are struggling to survive after the previous cooling measures to deter non-local buyers from the market," said Ricacorp chief executive Willy Liu Wai-keung.
Midland Realty predicted the property market would come to a standstill in the short term. It said the number of property transactions could drop to a 10-year low of below 100,000 this year.
Alfred Lau, a property analyst at investment bank Bocom International, said he expected the rise in stamp duties would scare long-term investors away from the market.
"Those sellers who are desperate to unload their properties now need to lower prices by an amount equal to the size of the increase in stamp duty, or 4.25 per cent, in order to entice buyers," he said.
Given the low holding costs, since interest rates are close to zero, Lau said he believed most owners with a strong financial position would prefer to hold back from selling.
"In this scenario, we may see a 2 to 3 per cent price correction," he said.