Yesterday, this column argued that the Hong Kong government's punitive tax on non-residents who buy apartments in the city will do nothing to make the property market more affordable for locals.
Judging from the messages that cascaded into my e-mail inbox, the majority of readers disagree - vehemently.
So, in response to all the feedback, I'm going to amend my view. The government's punitive tax on non-resident buyers will do nothing to make the market more affordable for locals in the near term. In the long run, its effects will be wholly negative.
First, let's dispense with the notion, espoused by several readers as well as the government, that increasing the special stamp duty on property owners who sell within three years of buying will deter speculators and so bring down prices.
As Cusson Leung and Joyce Kwok at Credit Suisse pointed out in a research note published yesterday, raising special stamp duty rates will only backfire. Experience shows that sellers will just try to pass the extra cost on to buyers by demanding higher prices in compensation.
Next, let's dispense with the idea that shutting mainlanders out of the local market with a punitive tax, which Monitor's readers clearly regard as an excellent move, will make flats any more affordable for locals.
The first chart below shows the estimated proportion of mainland buyers in Hong Kong's primary and secondary markets.
(Incidentally, these estimates are based on subjective judgments of whether the buyer's name looks like a mainlander's and so tend to overstate the number of non-residents in the market.)
As you can see, the proportion of mainland buyers has fallen over the past year. Yet as the second chart shows, prices have continued to surge, climbing more than 10 per cent over the same period.
One reader, who wrote in support of the new measures, unwittingly illustrated the reason why.
She is understandably aggrieved at having to pay HK$10,000 a month in rent for a 395 square foot flat in Sha Tin, because with similar flats now selling for HK$2.8 million, she cannot afford to buy.
Lots of people can, however. If you have the minimum down payment of HK$840,000, it makes compelling sense to buy a HK$2.8 million apartment, taking out a 25-year mortgage for HK$1.96 million to cover the rest of the asking price.
With mortgages available at interest rates of 3 per cent or less, your monthly repayments will be just HK$9,290.
As a result, your rental income of HK$10,000 a month will not only cover your mortgage repayments, it will give you HK$710 in spare cash. That's five times what you would have earned in interest had you stuck your HK$840,000 in a 12-month fixed deposit.
Naturally enough, lots of Hong Kongers with cash in hand have done the same calculation and are buying flats. Some are even remortgaging their own apartments and using the proceeds to buy more flats. As a result, prices are rising.
Slapping a punitive tax on non-resident buyers won't change things. If you don't believe that, just look at Singapore, which imposed its own additional stamp duty on foreign and corporate buyers in December last year.
Transaction volumes fell initially, but then recovered. Prices have continued to rise. Earlier this month, a bungalow on Sentosa island sold for a record S$3,214 per square foot. That's equivalent to an eye-popping HK$20,398 a square foot.
In the long run, however, the government's new tax will have indeed an effect. By selectively penalising non-residents, it broadcasts the message that Hong Kong is no longer open equally to all comers and so hammers a first nail in the coffin of the city as an international financial centre.