Hong Kong unlikely to follow Singapore in raising taxes for luxury homeowners

Too many pitfalls if Hong Kong follows Singapore and hits top 1pc, experts say

PUBLISHED : Wednesday, 27 February, 2013, 12:00am
UPDATED : Wednesday, 27 February, 2013, 1:43pm

Hong Kong is unlikely to follow Singapore's example by raising taxes for owners of the most expensive luxury homes, property and tax experts say.

The city-state's initiative is seen as being aimed less at cooling the market than at taxing the wealthy as part of efforts to reduce the income gap.

"Hong Kong's private housing market is a lot bigger than that of Singapore, and many people could be affected if the Hong Kong government follows suit," said Jennifer Wong, a tax partner at KPMG China.

A higher tax announced by Singapore's finance minister, Tharman Shanmugaratnam, in his budget speech on Monday will apply to Singapore's top 1 per cent of homeowners who live in their own properties, a total of 12,000 units.

Wong said there were more than 1.1 million private housing units in Hong Kong.

"Firstly, how do you differentiate luxury homes?" she said.

Many flats in the New Territories or in urban areas are worth more than HK$10 million. The general public could be affected, Wong said.

Even if the government defined luxury homes as those priced at HK$30 million or above, it would trigger speculation below that price level, she said.

"The introduction of what is in effect a wealth tax would run contrary to Hong Kong's position as a low-tax location," Edward Farrelly, head of research for Hong Kong, Macau and Taiwan at property consultancy CBRE, said. "Neither is it certain that such a tax would alleviate pressure in the residential market. As we have seen with the introduction of previous policy measures in Hong Kong, the market reacts very quickly to establish a new equilibrium, and the effect on pricing beyond the short-term is minimal," he said.

Singapore's government will also raise tax rates for vacant investment properties and those that are rented out.

"A tax on vacant units is one that has been mooted from time to time in Hong Kong, and it may have its merits in increasing supply," Farrelly said.

"However, caution should be exercised, as the more government intervenes in the market, the less credible is our claim to be a free-market environment."

Simon Lo Wing-fai, director of research and advisory at property consultancy Colliers International, said there were a lot of difficulties in bringing in such a tax.

The administrative cost for the government to monitor where vacant flats are located will be very high, Lo said.

William Chan, a partner at Grant Thornton Tax Services, said: "The [Hong Kong] government can do whatever it wants in an attempt to curb home prices."