15 per cent stamp duty
To rein in the city's runaway housing prices, Hong Kong's Financial Secretary John Tsang Chun-wah announced an additional 15 per cent stamp duty on non-permanent-resident and corporate buyers starting from October 27, 2012. The move prompted speculation over the effectiveness of taxation on the real estate market and criticisms that Hong Kong was turning away from its roots as a free market economy in favour of a more protectionist market environment.
Controversial property stamp duty bill moves one step closer to passage
Buyer's stamp duty likely to become law within days, but will it encourage sellers to cut prices and boost sluggish sales of second-hand flats?
Amy Nip and Tanna Chong
The second-hand property market has hit its worst level since records began, property agents said as the Legislative Council passed the second reading of a bill to formally introduce the buyer's stamp duty.
The bill is expected to pass a third reading within days. A third reading would write into the statute books the 15 per cent tax on home purchases by corporations or by individuals who are not permanent residents.
Agencies are divided over the likely effect of the tax, introduced in 2012 to curb soaring prices, becoming law. Some believe its passage will remove uncertainty and encourage buyers who had hoped to see the tax overturned to cut prices, reviving sluggish sales. Others see months of slow sales continuing.
Midland Realty's chief analyst Buggle Lau Ka-fai said second-hand sales had remained below 3,000 for four consecutive months, a trend expected to continue for this month.
"Never have we seen so few transactions of second-hand flats for a prolonged period," Lau said. "That would be the worst since 1996, when property transactions were divided into new and second-hand categories."
"The passing of the bill will make little difference to the market," he said. As long as the duty remains, it will put a cap on demand, he added.
Louis Chan Wing-kit, managing director for residential sales at Centaline, sees things differently. He expects property prices to drop by 15 per cent when the bill becomes law, with transactions up by 20 to 30 per cent by June.
"Some property owners would have imagined that the law could be rejected," Chan said. "Now it has become clear that it will not, owners will be more willing to slash prices. That will stimulate transactions."
By last night, Legco had rejected most amendments to the bill put forward by lawmakers.
Amendments exempting charities and companies owned by Hongkongers from the law were voted down, despite pleas for support from real estate-sector lawmaker Abraham Razack.
Razack denied he was standing up only for developers and agents, and made an unsuccessful plea for support from the city's biggest party, the Democratic Alliance for the Betterment and Progress of Hong Kong.
"The DAB was elected by a big circle of Hong Kong people, therefore they should vote for this amendment to uphold the rights of Hong Kong people," he said.
Housing minister Professor Anthony Cheung Bing-leung said the exemption would create loopholes, as local companies could be controlled from outside.
Cheung said uncertainty meant this was not the right time to scrap the tax. He told lawmakers the government would give Legco a vote before any future increase in the duty - in contrast to the system of "negative vetting", under which lawmakers vote on a tax change after it has been gazetted. Negative vetting would remain were the duty to be reduced or scrapped.
The property agents said negative vetting should remain to give the government flexibility.