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.
Stamp duty good news for first-time buyers
Stamp duty on corporate and non-local homebuyers will help those hoping to buy their first flat, with drop in prices forecast
Rachael Ng's dream of owning a home of her own has been dashed so many times she was beginning to despair - until last week's government measures to rein in soaring property prices revived her hopes of finding a flat to fit her budget.
"I have been searching for years, and even when I found a flat that wasn't quite suitable, my agent would urge me to make an offer as soon as possible because a number of other home-seekers had their eyes on it.
"But when I finally decided to buy, even though it was not quite right for me, the agent said the flat had been sold. It was becoming very frustrating," recalled Ng. "Now I believe I will have more choice and can find what I am looking for."
Ng, who is in her mid-thirties and works in the banking sector, is presently renting a home in Mid-Levels. She resumed her search this week for an apartment on Hong Kong Island of between 700 and 1,000 square feet, and priced at around HK$15,000 per square foot.
"I am not buying with a view to making a capital gain. I can make returns similar to those available on property by investing in other assets, such as bonds. I need a home to live in," she said.
Her hopes of finding a home that fits her requirements and budget were boosted, she said, by a new crackdown on speculators operating in the property market.
Financial Secretary John Tsang Chun-wah said the special stamp duty, first introduced in November 2010 to curb snap resales of homes by speculators seeking a quick profit, would rise from 15 to 20 per cent on resales within the first six months of a purchase, and from 10 to 15 per cent for resales within six to twelve months. The duty period was also extended to three years, with the levy on homes sold within one to three years of purchase rising to 10 per cent.
Tsang also announced a buyer's stamp duty of 15 per cent would be payable on property bought by non-permanent residents or by buyers using a company to make the purchase.
Tsang said the measures aimed at curbing speculation in the market were "extraordinary measures under exceptional circumstances", and pointed to a 21 per cent rise in the price of small and medium-sized flats since January, which he said had made homes unaffordable for many buyers.
Paul Louie, head of regional property research for Asia at investment bank Nomura, said he expected transaction volumes to decline by 15 to 20 per cent as a result of the latest measures, and said prices could fall by 3 per cent to 5 per cent in the next one to two months - an outcome that Ng and many others in her situation would welcome.
The immediate effect was that the number of flats sold on the secondary market in 10 major housing estates plunged from 20 the previous weekend to just 12 last weekend.
"Agents told me there were fewer buyers looking for homes over the weekend. But at the same time, fewer sellers were offering flats for sale," said Ng, who has decided to watch the market closely for a few weeks before making a move.
In response to the new duty on non-resident buyers, Yao Wei, a Beijinger who has worked on and off in Hong Kong for a number of years, said he would check to see if he qualifies for a Hong Kong identity card.
"Assuming that I can apply to be a permanent resident, I will take this as an opportunity to buy, as I expect home prices may drop a bit. But without the residency status I will not buy, as the extra stamp duty costs a lot."
The frustrations may not be over for buyers, since many sellers could respond to the measures by withdrawing their homes from the market.
Homeowner C.L.Kong, for example, said he would not offer his Tseung Kwan O flat for sale until a clearer picture emerged.
"I anticipated the government would issue more measures. I had planned to sell my flat and then wait for a price drop. But the measures came sooner than I expected," said Kong, who is in his mid-thirties and also works in the finance industry.
Thomas Lam, the director and head of research for Greater China at property consultancy Knight Frank, said he expected residential sales to reach only 65,000 this year, down from 84,000 last year. Price movements would be highly uncertain, he added.
"Developers are expected to launch new homes with a milder pricing strategy, while secondary residential supply will decrease since owners who do not need to sell urgently will hold on to their properties or lease them rather than sell," he said.
However, Lam said that in the medium to long run, buyers would come back to the market, including end-users who had genuine housing needs. Some speculators would also be drawn back in - particularly those from the mainland who still saw Hong Kong as a safe haven for asset investment and enjoyed price discounts due to continuing yuan appreciation. But Lam cautioned that if prices did not fall as a result of the latest measures, the government could take further steps to stem any upward movements.