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.
Insight into Hong Kong buyer's stamp duty
The Hong Kong government's Buyer's Stamp Duty, a 15 per cent tax on property transactions imposed on non-permanent residents, is designed to cut speculation in the local property market. In particular, it is designed to cut speculation by mainland buyers.
Speculation? What speculators? One measure of speculation is confirmor sales, which is where a property owner resells a property before he has transferred legal title. It is flat flipping in its purest sense.
In the year to date, the proportion of residential confirmor sales reached a record low of 0.1 per cent. In other words, with speculators playing residential property an immaterial and miniscule part of the market already, action by this class of players would be next to nil.
Separately, according to Centaline data, the proportion of sellers who hold property for less than six months has fallen from 14 per cent in 1997 to a low of 0.2 per cent in the year to date.
Sellers holding for less than three years generate about 20 to 30 per cent of property sales.
Mainland buyers make up most of non-local buyers in Hong Kong, buying 31 per cent of new flats and one-third of new luxury properties.
As mainland buyers pull out of Hong Kong residential real estate, developers could see collective demand for the properties drop by half.
This is equivalent to an annual drop in sales revenue of up to HK$72 billion, translating to HK$17 billion to HK$29 billion of lost profit each year for the developers as a whole.
We estimate two years' of lost profit would equate to 3.5 per cent to 6 per cent of share price losses for the sector.
In other words, the share price drops of last Monday already largely discount the prospect of this measure being in force for just over two years.
Eric Wong is chairman of Bricks & Mortar Management, a property research firm