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.
"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.