• Thu
  • Dec 25, 2014
  • Updated: 3:52pm
NewsHong Kong

Demand for flats falls by half in wake of stamp duty rises

Stamp duty rises aimed at cooling market have an immediate effect as buyers and sellers adopt cautious approach, leading to big drop in deals

PUBLISHED : Sunday, 24 February, 2013, 12:00am
UPDATED : Sunday, 24 February, 2013, 5:02am

The latest measures to rein in Hong Kong's property market had an immediate effect yesterday, with agents reporting a 50 per cent drop in deals for flats.

Developers hoping to complete sales programmes looked for ways to fight the impact of sharp increases in stamp duties.

They increased the commission for agents - some of whom were passing on the increase to buyers to make up for the extra duty they will pay.

"The secondary market has almost become a sleepy backwater, with sales volume plunging by more than half," Willy Liu Wai-keung, chief executive of real estate broker Ricacorp Properties, said.

"Buyers are worried they will buy something too expensive, while sellers are panicking that they may sell their flats cheaply, so they now wait and see."

Other agents said not many people were looking for flats.

On Friday, the government announced a doubling of stamp duties on home and non-residential properties valued at more than HK$2 million. Stamp duty on properties costing less than HK$2 million rose from a flat rate of HK$100 to 1.5 per cent of the transaction price.

The only people exempt from the higher rates are first-time buyers, those who do not own other homes and those selling their only flat and buying a new one within six months.

Those forced to buy a flat because of urban renewal might also be exempted, Barry Cheung Chung-yuen, executive councillor and chairman of the Urban Renewal Authority, said.

Developers rushed to complete planned flat sales on Friday evening following the announcement of the new measures, which came into force at midnight.

Sino Land sold 36 flats at The Avery in Kowloon City on Friday. However, by 6pm yesterday it had sold only one flat there.

"I first planned to buy a large unit but now I'm thinking about a smaller one instead due to the new measures," a mainland buyer said outside the sales office.

Henderson Land and New World Development sold 20 flats at their joint project The Reach in Yuen Long yesterday, according to property agents. They said the developers had increased agents' commission from 2.5 per cent of the sale price to up to 3.5 per cent.

Sun Hung Kai Properties also raised commission for agents selling flats at Residence 88 in Yuen Long.

New World Development chairman Henry Cheng Kar-shun backed the government's moves, saying: "Home prices have been rising, and cooling them down a bit is appropriate."

Benjamin Hung Pi-cheng, the Association of Banks' chairman, said new mortgages may drop by 30 per cent, in part because of strict affordability rules also imposed by the monetary authority.


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This article is now closed to comments

This article confuses "demand" with "transactions". It could just as easily have been titled "supply of flats falls by half...". What is really happening is that higher transaction costs reduce transaction volume. When the price of doing something goes up, less of it gets done. Higher transction costs don't actually change the value of property, as determined by the "mid-price" - the average of what the buyer pays and the seller receives. So if a property was transacted at $6m+3% stamp paid by the buyer, then the seller receives $6m and the buyer pays $6.18m, so the mid-price is $6.09m. Doubling stamp to 6% just means that the transacted price drops to $6.09m/1.03=$5,912,621. That's what the seller gets, while the buyer pays $6,267,378. The seller gets less than before, while the buyer pays more than before. As a result, fewer potential sellers and buyers are willing to deal.
Raising stamp duty only raises the cost for buying flats which makes it more difficult for end users as well as speculators. I agree with discouraging speculators but not this sledge hammer approach that does not help those end users struggling to buy a flat.
The market as a lot to fall - and will fall, sooner or later.
I don't get users comments saying it will be hard for end users to buy property.
If you own 0 property and you buy one, the "new" thing is that you won't pay any stamp duty!
That's what people are missing here.
The increase only concerns people who have more than 1.
I think this new pepper is matching the current need to own a property.
Having more than 1 property is already not a necessity.
FS said that there are 3 categories of people who will be exempt from the higher Stamp Duty rates:
1 first-time buyers,
2 those who do not own other homes and
3 those selling their only flat and buying a new one within six months
It appears that the third category is superfluous since once people sell their only flat, they no longer own any home and become the second category above.
Will fall when interest rates spike
Bernanke says mid 2015 might be end of QE and that if recovery is at current pace
So if any problems it could be longer
And in any case Fed wont have very high rates as this 'recovery' is addicted to low rates
So wont have very high rrates for a very very long time
Although I support the idea of raising the stamp duty as a means to reign in rising property prices, I believe doubling the stamp duty is a heavy handed measure that will end up back firing since it will result in a big drop in the number of property transactions. I would have thought a smaller incremental approach of adjusting the stamp duty would have been better (similar to how interest rates are adjusted) . The government could then monitor the effect of the adjustment both on property prices and the number of property transactions and then, from time to time, adjust the stamp duty percentage accordingly. Nobody (except a few speculators) wants lead to a roller coaster in property prices since it will most hurt those genuine home owners who bought in at the top.
It makes sense as those who had shown interest to buy on Saturday purchased Friday night instead thus did not buy Saturday. I think it is time for people to forget about flats for a while. The last 12 months people only think and talk about properties.


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