Concrete Analysis | Hong Kong should jail those who abuse first-time flat buyer entitlements

Hong Kong Financial Secretary Paul Chan Mo-po recently reminded everyone in his blog that it is a criminal offence to split residential property purchases by using other people’s entitlements or to let others use one’s own first-time buyer entitlement, through private arrangements, to work around the new stamp duty policy of restricting multiple flat purchases by a single buyer.

Once convicted, in addition to having to pay back the difference, one would also be subject to a fine of as much as 10 times that amount and even imprisonment. Chan warned and emphasised that the Financial Services Bureau and the Inland Revenue Department would investigate thoroughly and prosecute people who made false declarations.

As property prices, in particular for residential flats, have skyrocketed, some parents endeavoured to use their children’s names to buy properties for investment or self-occupation, to take advantage of the youngster’s lower tax burden as a first time buyer. They were possibly encouraged by some media hype that this could simply be regarded as an act of “parental support to the children”.

Perhaps these parents may not be concerned about the likely risks arising from things such as the mortgage loans, rental leasing, resale transactions etc, and while family disputes may not necessarily arise, one could likely be held liable for making misrepresentations.

In the past, buyers of luxury apartments were covered as their purchases were made in the name of companies. However, recently a lot of transactions were made by individual “first-time buyers” who avoided payment of the 15 per cent stamp duty by using other people’s entitlements through private arrangements.

The cumulative “savings” in taxes can be phenomenal. Such workaround dealings could even be used by various criminal syndicates for money laundering. We should not take the possibility lightly.