Now is the time for Hongkongers to upgrade to a bigger, better flat as coronavirus makes work-from-home the new norm
- Many local Hongkongers and expatriate permanent residents are looking at moving to more spacious homes in better locations
- Now is a good time to do it, with banks still happy to lend and interest rates remaining at historic lows even as a new low-rate cycle begins, writes Victoria Allan of Habitat Property
It’s not necessary to remind anyone of why, but it is interesting to note that despite work being remote or semi-remote, it hasn’t stopped.
Armed with proof their employees will do their jobs without anyone leaning over their shoulders, it’s possible employers will take advantage of that entirely feasible honour system and start examining the benefits of downsizing expensive office space while increasing housing allowances to ensure key staff can work from home. An entirely new residential landscape could be on the horizon as a result.
Local Hongkongers and expatriate permanent residents are looking at upgrading their homes in massive numbers. The residential property sector is currently dominated by end users; the 30 per cent stamp duty on non-resident purchases has, rightfully, driven speculators away.
But local demand is as ripe as ever and, for many, now is the time to find a bigger space, a greener neighbourhood, or both.
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As travel becomes infrequent they’re re-evaluating where they use their money, and increasingly that’s on a bigger flat near a country park where one can “get away” for a few hours. Our collective tolerance for commuting has opened the city up, and we are willing to make the move from urban Mid-Levels or Kennedy Town to the South Side, Sai Kung or Clear Water Bay.
Upgrading one’s home can seem complicated at first glance. For buyers, the relatively new, scaled stamp duties on second properties and the associated exemptions can be intimidating. There seems to be a one-year criterion for just about everything.
However, these are the same rules that have made the property market so robust and resilient under even the most trying of circumstances. Essentially, a current owner who has owned their property for between one and three years is subject to a special stamp duty of 10 per cent upon sale.
For six to 12 months the rate is 15 per cent, and at under six months it’s 20 per cent. Owners who have a property and buy another – upgraders – need to pay a steep 15 per cent ad valorem duty upfront. They then have 12 months from completion of the transaction to sell the first property, and then be refunded the difference.
In a nutshell, end users need not fret about making the leap from the HK$7 million to HK$15 million tier, and anyone considering it would be wise to do so now, before the market begins its recovery in the next six to 12 months.
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Now is a good time to upgrade, with banks still happy to lend and interest rates remaining at historic lows even as a new low-rate cycle begins. The residential market is buoyed by nearly unquenchable local demand with very little debt that is unlikely to let prices fall more than another 5 per cent in the immediate future. There’s better value in the market than has been seen in years, and savvy buyers are looking to take advantage of savings on a better range of stock.
Best of all, vendors are in realistic moods. Even without the expected distressed properties, sellers find themselves in the position landlords were in when the coronavirus started and are willing to negotiate.
Despite the nervous energy resulting from the recently implemented security law, Hong Kong’s property prospects for 2021 and beyond are bright. Long-term sentiment is still strong – including among crucial institutional investors and mainland Chinese firms listing on the Hong Kong stock exchange in the wake of tightened regulations in the US. The economy will stabilise eventually, positivity stemming from the business benefits of the Greater Bay Area lingers, and the proposed Limited Partnership Fund Bill, designed to bring Hong Kong’s private equity market onshore, is expected to be enacted by the end of August.
That’s the kind of boost the financial services industry could use, and it ensures the city remains a financial hub going forward. And there’s still no capital gains tax on property after three years of ownership, which is a huge upside for investing in Hong Kong. Few other markets offer those kinds of advantages, for now or the future.
Victoria Allan is founder and managing director of Habitat Property
