A special stamp duty intended to discourage the resale of flats within two years of purchase lost its effect after just 16 months, official statistics show.
The government brought in the levy to curb speculation and cool the property market in November 2010. The duty requires people to pay 5 to 15 per cent of a flat's price if the property is resold within two years. The longer they hold the flat, the lower the duty.
Since its introduction the number of speculative confirmor transactions - resales before a property is assigned - dropped dramatically. But resales one to two years after assignment, which initially dipped, have crept up again. They accounted for 6.3 per cent of transactions in the third quarter - only slightly below the level before stamp duty was introduced.
The government also released the latest figures for quarterly economic growth alongside the property statistics. GDP grew by 1.3 per cent year on year in the third quarter, up slightly from the 1.2 per cent growth in the second quarter. On a quarter-to-quarter basis, real GDP grew 0.6 per cent, after a decline of 0.1 per cent in the preceding quarter, due to improved external trade, thanks to stronger growth in Asia.
Inland Revenue Department figures show the number of confirmor transactions was at most 20 per month in the 16 months after the duty's introduction. But it jumped to more than 100 per month in March. Since August, that pace sped up to reach about 285 in October.
"As property prices go up, deterrence of the 5 per cent duty diminishes," government economist Helen Chan said yesterday.
This trend explains the adjustments in the duty last month, she said. People buying flats on or after October 27 must pay a duty of 10 to 20 per cent for a resale, five percentage points more than before. The government also extended the tax's effect from two years to three.
Patrick Chow, head of research at Ricacorp Properties, said property prices jumped 21 per cent in the first 10 months of this year. In February and March, the month-on-month increase was three to four per cent.
"Due to soaring prices, sellers didn't mind paying the special stamp duty for buyers. They could still make a profit," he said.
The surge in resales in recent months had also been affected by the structure of the duty. Many owners held onto their flats for more than a year after its introduction, and were now subject to the lower rate of 5 per cent, Chow explained.
However, he believes the new 10 per cent duty will remain effective. "People would rather hold on to their properties for a little longer than pay the government a huge sum."
The government has revised its economic forecast for GDP growth this year from "one to two per cent" to 1.2 per cent. The forecast for headline inflation is also revised from 3.7 per cent to 3.9 per cent due to a rebound in global food prices in July and August following the drought in United States and the new rounds of quantitative easing in various economies.
The US "fiscal cliff" posed great uncertainty for the global economy, Chan said. If the country fell into recession, it would dampen the already-sluggish European markets and inevitably affect Hong Kong.