New property taxes still in Legco limbo
Bills raising stamp duty to dampen market have been stuck in Legco committee for months, but they are already having a big effect
Hong Kong lawmakers remain locked in a tug of war with the government over policy measures aimed at hosing down home prices, with no immediate end to the impasse in sight.
The Legislative Council's refusal to rubber-stamp hefty tax increases on property sales without extracting a raft of concessions and amendments has left the government bills in limbo for almost a year.
Meanwhile, conveyancing lawyers are collecting the extra taxes that have not been legislated for and holding them until they are handed over to the government or returned to buyers.
"It has taken such a long time for legislative councillors to discuss the measures that they have already had an immense impact not only on the real estate industry but also the Hong Kong economy," said Shih Wing-ching, founder of Centaline Group, which runs one of Hong Kong's biggest property agencies, Centaline Property Agency.
Shih attributes some of the delay to a filibuster by lawmakers aimed at delaying approval for the budget - an echo of current events in the United States Congress, where Republican lawmakers are holding up approval of the budget in a bid to thwart the health reform measures of President Barack Obama.
The first of the two bills - The Stamp Duty (Amendment) Bill 2012 - was tabled for a consultation in Legco in January; and was followed by The Stamp Duty (Amendment) Bill 2013, which was tabled in May. Both were referred to the Bills Committee for further discussion and possible amendments.
The two bills came after a string of other cooling measures dating back to October last year, and between them the measures significantly raised transaction costs, leading to big falls in sales volumes. September sales in the secondary market were down 50 per cent on the same month last year.
Prices in the mass market are down just 3 per cent from their peak in March, but new luxury projects are being released at discounts of up to 20 per cent on previous releases.
Starry Lee Wai-king, chairwoman of the 28-member committee, attributed the long hold-up of the bills in the committee to the controversy surrounding the need to introduce higher property tax, as well as the large number of members on the committee.
"I needed to ensure that all members had sufficient time to express their views," she said.
The first of the bills, The Stamp Duty (Amendment) Bill 2012, seeks to impose a buyer's stamp duty of 15 per cent on top of the existing stamp duty on the price of a property on people who are not permanent residents and those buying properties through companies.
Fourteen meetings of the Bills Committee have so far failed to reach a consensus on the provisions or amendments, and another meeting is scheduled for next Tuesday.
Legislator Abraham Razack, who represents the real estate sector and sits on the Bills Committee, is demanding an amendment that would return the stamp duty on property bought by companies wholly owned by Hong Kong permanent residents if the property is not resold within three years.
The Stamp Duty (Amendment) Bill 2013, which proposes to double stamp duty on all property that are valued at more than HK$2 million, was tabled in May and referred to the Bills Committee.
After four rounds of meetings, members have still failed to reach agreement on their preferred amendments and the next session is scheduled for October 21.
It is understood that committee members have also lobbied the government to amend both bills to waive the collection of the additional taxes on purchases by charitable organisations.
But to date the government has stood firm on opposing these amendments and whatever other objections the committee members might have voiced.
Chan Ka-keung, secretary for financial services and the treasury, has rejected the changes proposed by law makers, arguing that the external economic environment remains volatile and there is a risk of rising interest rates.
There would also be an increased risk of opening more loopholes in the legislation if the rules were relaxed, he added.
Financial Secretary John Tsang Chun-wah last month urged lawmakers to pass the bills, saying they were needed to stabilise flat prices.
Meanwhile, buyers who are affected by the new taxes are already having to pay the extra stamp duty as soon as they make their purchase.
"The money will be kept in the law firm's account as we assume the bills will be passed any time now," a lawyer said.
He added that the Inland Revenue Department would start collecting the extra stamp duty once the bills were passed by Legco.