Unknown to most, proposed tax measures had quietly but steadily deflated the bubble that was threatening to push property prices to sky-high levels after Financial Secretary John Tsang Chun-wah's announcement to rein in the market.
Property prices had jumped 80 per cent in five years, making them the most expensive across the world.
Tomorrow will be exactly a year since Tsang's announcement of doubling the stamp duty for properties worth HK$2 million and above, and prices have dropped just 4.5 per cent from the peak in March last year.
Doubling the duty was the third tax introduced by the government in less than two years to cool the market. The first two were the buyers' stamp duty and a special stamp duty, both put in place in October 2012.
"The measures to cool the market proved effective. Without doubt, the crazy rise in property prices would continue in the absence of a hefty increase in property tax," said John Siu, managing director of Cushman & Wakefield (Hong Kong). Raising transaction costs also stamped out the speculative fever for shops and car parking spaces, he said.
As a result, transaction volume has sunk to a level last seen when Hong Kong was hit by the Sars outbreak in 2003.
The measures released the air of the housing bubble over the past year, leading to stable prices and the near-absence of speculative pressures in the market.
This shows the market took seriously the government's message that it would not tolerate excessive speculation and would rather see more order - not chaos - in the market.
The first of the two bills - the Stamp Duty (Amendment) Bill 2012, which imposed a buyers' stamp duty of 15 per cent on top of the existing duty on non-permanent residents and those buying through companies - was passed on second reading by legislators yesterday and they are now examining its amendments.
Government figures showed 3,000 transactions involving HK$4.3 billion was held by lawyers, who will hand over the money to the government once the bill is passed.
This year, the government faces another uphill battle to convince lawmakers to pass the second bill - the Stamp Duty (Amendment) Bill 2013, which would double the duty on all properties valued at more than HK$2 million except for first-time buyers. The measure sparked opposition from foreign chambers of commerce, charity organisations and small to medium-sized companies.
The government says the move is designed to curb speculation.
But foreign firms say they have been unfairly targeted as this raised their business costs. The top bracket - on sales of more than HK$20 million - rose to 8.5 per cent of a property's value from 4.25 per cent.
"While we recognise the government's objective of providing long-term stability to the market, we believe the policy inadvertently harms the long-term interests of the Hong Kong business community," the Canadian Chamber of Commerce said.
"The goal of the [policy] was to reduce market speculation and curb pricing levels. However, [it] is based on the incorrect assumption that all property investors act as speculators. It penalises companies who acquire commercial property for self-use or as long-term investments."
Non-speculative acquisitions of commercial property should not be covered, it added.
Because of the increase, Canadian insurer Manulife Financial had to pay HK$383 million instead of HK$191 million when it spent HK$4.5 billion on acquiring West Tower at One Bay East in Kwun Tong in March last year.
Michael Nardella, a director of the Canadian chamber, said it would join the British and American chambers to invite government officials and the private sector in a panel discussion on the possible impact of the move on the business community.
Since the doubling of stamp duty was introduced a year ago, commercial transactions have dropped 53 per cent to 1,329 last month while total value tumbled 69 per cent to HK$6.3 billion from last year.
"[This policy] is the toughest among the three taxes," said Victor Tin Sio-un, associate director at Sino Land.
Given slack demand, developers are being forced to provide subsidies on the extra stamp duty and price cuts to speed up sales.