• Thu
  • Dec 18, 2014
  • Updated: 9:56am
NewsHong Kong

Property price curbs could lead to government deficit next year, warns economist

Economist warns that tougher rules on flat sales will reduce government revenue, while agent says they damage free-market principles

PUBLISHED : Monday, 14 October, 2013, 9:15pm
UPDATED : Tuesday, 15 October, 2013, 2:41pm

Measures to cool the housing market could result in a serious deficit for the government in the next financial year by slashing one of its main income sources - stamp duty on property sales - a university economist says.

Ho Lok-sang said a dramatic drop in transactions had already been noted since the introduction of a special stamp duty and a 15 per cent duty on overseas and corporate buyers on top of stamp duty.

"The cooling measures will not only dampen overseas demand on local properties, but reduce the supply of flats especially in the second-hand market," the Lingnan University professor said. "Owners seem to be cautious over the uncertain market conditions, worrying that the government will further intervene in the market."

Ho was speaking at a seminar organised by free-market think tank The Lion Rock Institute and low-tax campaigner Momentum 107 on the cooling measures.

He said the measures could also shake the confidence of potential property buyers and foreign investors that might have a snowball effect in areas beyond the property market. "All these would result in a huge impact on government income," he said.

According to the Inland Revenue Department, residential property transactions involving company buyers before the introduction of the Buyer's Stamp Duty stood at 80,349 between January and October last year, while the number dropped to 54,964 from November last year, when the duty took effect, to last month.

Another guest speaker, Centaline property agency founder Shih Wing-ching, said property cooling measures should not go against free-market principles as it would hinder the free flow of capital and put investors in an unfair situation.

"It is understandable that, since the global financial crisis, both the Bank of England and the Federal Reserve have used the policy of quantitative easing to try to revive consumer spending, but have created turbulence in the market," he said.

The cooling measures will not only dampen overseas demand on local properties, but reduce the supply of flats especially in the second-hand market
Ho Lok-sang, Lingnan University professor

"Individuals would therefore like to protect their assets by converting their money into real estate."

He said the measure had more to do with political aims than economic considerations.

"Chief executive Leung Chun-ying put forward his ideas on tackling the city's housing problems when he was running in the chief executive election and he is endeavouring to separate the government from being close to the commerce sector."

Shih said the cooling measures would not bring long-term housing improvements unless the government could boost land supply.

He also suggested the measure might be scrapped within two years because of its damage to the free market.

Meanwhile, Financial Secretary John Tsang Chun-wah reiterated yesterday the government would not amend the cooling measures or introduce a sunset clause for the Stamp Duty (Amendment) Bill 2012, amid calls for adjustments to the controversial taxes.

Tsang said removing the measures would cause more turbulence in the market when the government's aim was to stabilise it.


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@"free-market principles"
There has never been 'free market principles' in Hong Kong in relation to land prices. The cost of land has always been rigged by Government.
The Lands Department has steadfastly refused to lower asking prices whenever there have been periodic natural property price corrections. It has always intervened to control prices, keeping them high.
That's why we are now in such a mess with the tragic social consequences of the poor and middle class not affording to own their own homes.
"Centaline property agency founder Shih Wing-ching, said property cooling measures should not go against free-market principles......." This Greedy and Selfish moron just doesn't see that "Affordable Housing" is not a commodity, but a Basic Necessity and a Livelihood issue. All these "high" volume of transactions were a result of Speculation, and it should be STOPPED!
True. The only reason the Brits were not kicked out sooner as they were smart enough to let a few select locals in on the game.
Regarding threats of an impending govt deficit, we have seen this movie before.
You're correct about this but actually Hong Kong does not yet need a general sales tax. This puts the tax burden inequitably on the poor and middle class once again.
We need the rich and the corporations to pay their fare share of taxes which at the moment they escape by incorporating their assets and businesses off-shore. Tycoon's business expenses (all tax deductable) are just a joke here. Up to 25% of company turn-over tolerated by IRD.... no questions asked.
Note quite!
Hong is "not going the same way" it has been like this for years. The Mainland is now playing catch-up with Hong Kong.
We need a short sharp dose of Mao to diminish landlord power.
The horror, the horror. Things getting cheaper! Not good. Print more money. "Stabilize" the wealth gap.
No politicians propose sales tax to replace the income from land sales and to sustain the curb on land price.
Government deficit - even the government couldn't do it's own math when it forecast the last deficit which turned out to be a major surplus... why listen to whoever this guy is that's spouting off about it again?
"Affordable Housing" is not a commodity, but a Basic Necessity and a Livelihood issue...". How do you define affordability? Between 1997 and 2003, when property prices dropped by more than two-third, did we see any pickup in demand?
The two issues here are welfare and market
Given HK’s sizeable endowment, thanks to mainland China,
the city can afford to be provincially-minded about needs
and be more relaxed about providing welfare housing
But market is a globally connected nexus
Deflation of local assets accentuates inflation of imported necessities
Rational reconciliation required segregation of housing into
those for need under control, such as public welfare facilities, and
those for the market, competing for investments required to keep
the city abreast with leading global economic development.
One city, two property sectors



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