image

Weekend Property

Price to pay: new Hong Kong property tax will have far-reaching changes for market

Homebuyers will seek better deals elsewhere, property analysts warn

PUBLISHED : Friday, 02 December, 2016, 10:02am
UPDATED : Friday, 02 December, 2016, 6:26pm

Hong Kong homebuyers have started to look at Australia and Britain in the aftermath of new stamp duty introduced by the government last month, according to property agents.

The stiffer stamp duty of 15 per cent for non first-time buyers introduced from November 5 has put a brake on property transactions in Hong Kong as mainland buyers adopt a wait-and-watch attitude, while Hong Kong buyers try to find loopholes in surmounting the new stamp duty. All this, in a market already considered as having the most expensive real estate in the world.

Overseas buyers looking to expand their Hong Kong property investment portfolio would now need to stump up 30 per cent in stamp duty.

Will this drive investors to look at other markets, such as Australia, Britain, the United States and Japan? “Most definitely,” says Tony Crabb, national head of research at Savills in Sydney.

This year, when Australian states started imposing additional taxes for foreign buyers – an attempt to cool the market, as is Hong Kong’s motivation – it was little more than a nuisance factor as far as investors were concerned, Crabb says. But those increases, imposed progressively by New South Wales, Victoria and Queensland, were only in single digits.

In contrast, Hong Kong’s new tax poses “quite a high barrier”, which could have “far-reaching changes” for the market that is often a mainland investor’s first port of call, he believes.

Chinese investor interest in Australian residential property had cooled in recent months, for a range of factors, Crabb says – among which taxes were “so small as to almost be insignificant”. Rather, capital constraints, and a pick-up in the Chinese domestic housing market, were more likely in play.

“Australia’s [housing] fundamentals are still strong,” Crabb says. Population growth fuelled by a record number of immigrants is underpinning demand especially in Sydney and Melbourne, and Australia still offers investors freehold title, planning certainty, the rule of law plus, for investors who intend to be residents, clean air, free education and free health care.

There is also the likelihood of further cuts next year to Australia’s record low mortgage interest rates, Crabb adds. “Investors would regard this as a relatively stable situation and [property offering] good value for money. From a Chinese viewpoint, this equates to stronger purchasing power in Australia.”

Considering the uncertainties surrounding other popular investment markets – Brexit for London, the Donald Trump presidency for US and European markets in general – plus hefty taxes in parts of Canada, Crabb believes Australia offers a compelling proposition.

Charles Pittar, CEO of Juwai.com, a Chinese-language property portal, agrees that Hong Kong’s tax increase will send mainland purchases in particular in search of “better deals” elsewhere. Their appetite for property has not waned, he reasons, making “the prospects for Chinese real estate investments in global markets stronger than ever”.

Traditionally, Pittar explains, China-based buyers have favoured Hong Kong to escape purchase restrictions imposed in the mainland’s domestic market, and to shield their assets from the yuan’s recent devaluation.

“Two reasons drove Chinese buyers to Hong Kong: the RMB’s depreciation, and the fact that investor options in China have narrowed and price growth prospects weakened after the Chinese government increased sales taxes, tightened mortgage criteria, and cracked down on multiple home purchases to cool price growth in mainland cities,” Pittar says.

“With this new 30 per cent stamp duty taxed on foreign buyers, though, Hong Kong properties will no longer be as attractive as before to mainland property investors.

“Yet, these two same factors, fuelled by the Chinese incessant hunger for property ownership, remain the same, and thus, this will continue to push Chinese property investors to seek opportunities out of China and Hong Kong in the near future.”

As for which markets they might look to, Pittar says London is already garnering interest.

“Chinese buyer inquiries for British properties rose 30 to 40 per cent on Juwai.com approximately four weeks after the Brexit referendum, with a record number of inquiries from Chinese buyers charted in September,” he says.

“With sterling still weak and at a 30-year low amid the continued Brexit uncertainty, Chinese property hunters have been quick to strike while the iron’s hot [especially in London], and we foresee this trend will continue into the new year.”

Other markets Pittar predicts may attract foreign buyer interest in the wake of Hong Kong’s tax hike are South Korea, the US and Malaysia.

Property sales in Seoul to Chinese investors “have tripled in 2016”, he says. “We expect Chinese buyer presence in South Korea to continue growing, down the road.”

In the US, Chinese buyers remain the dominant foreign buying force, accounting for some US$27.3 billion worth of residential property sales, according tothe National Association of Realtors’ figures. It remains to be seen, Pittar concedes, what will happen with Trump as president.

As for Malaysia, Pittar notes that Chinese buyer inquiries for Malaysian properties on Juwai.com soared 550 per cent in the year to August.

“With the news that Alibaba tycoon Jack Ma has been appointed as the digital economy adviser for the Malaysian government following Malaysian Prime Minister Najib Razak’s recent official visit to China, this could send additional Chinese attention towards Malaysia.”