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Hong Kong property

Action urged on Hong Kong flat grabs in first-time buys

Sharp rise seen in number of transactions that bundle multiple units for acquisition under one agreement to avoid paying standard stamp duty

PUBLISHED : Thursday, 30 March, 2017, 11:32pm
UPDATED : Thursday, 30 March, 2017, 11:36pm

The government is being urged to plug a loophole in the tax regime after seeing a sharp rise in the number of first-time buyers purchasing multiple properties in one go to avoid paying a levy.

Industry practitioners have suggested the administration take action instantly to cool the ­sizzling property market.

Lilian Chiang, a senior partner at law firm Deacons, said the government could amend the existing Stamp Duty Ordinance so that anyone purchasing more than one flat would be “treated as a second-time home buyer even for a single transaction”.

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Under this scenario, second-time homebuyers would be liable to pay the standard stamp duty of 15 per cent, rather than the previous rate of 4.25 per cent for such buyers.

“It’s not difficult at all to plug the loophole,” she said.

It’s just a matter of whether the government is willing to do it or not
Lilian Cheng, Deacons senior partner

“It’s just a matter of whether the government is willing to do it or not.”

The existing tax ordinance ­collects stamp duty based on the total value of each instrument or sales agreement.

At present, for a single instrument involving multiple residential properties, the Inland Revenue Department regards the concerned residential properties as a single transaction.

More than 420 registered sales and purchase agreements of over 950 flats involved single buyers acquiring more than two units, according to a report in Chinese-language newspaper Ming Pao on Thursday.

In one case, a customer bought 15 units for more than HK$145 million at K City in Kai Tak in a single transaction. If this person was a first-time buyer and owned no other properties, he or she would have paid 4.25 per cent of the transaction value in stamp duty, or HK$6.16 million, instead of 15 per cent, HK$21.75 million.

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In November last year, the government raised the stamp duty to 15 per cent on residential transactions for corporate buyers. Non-first-time individual buyers have fuelled the rising number of investors seeking to bundle multiple units under one agreement.

To stem this practice, architectural sector lawmaker Edward Yiu Chung-yim has proposed that all flat buyers be required to pay double stamp duty on their first purchases, with those who qualify as first-time local buyers able to claim exemptions on their tax bill.

“It used to be one lease for one flat with a roof or parking spot,” he said. “Now it’s one flat and 10 ­other flats.”

However, Denis Ma, head of research at real estate management company Jones Lang LaSalle, had concerns about Yiu’s idea.

“Applying a flat 15 per cent tax to all buyers and then rebating the difference to those that would ­ordinarily be exempt from the higher levy would, in our opinion, only exacerbate the problems in the housing market,” he said.

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According to the Ming Pao report, one buyer of multiple flats at One Kai Tak – a development touted under the 2012 “Hong Kong property for Hong Kong people” scheme – was an official from Beijing’s liaison office in the city. A permanent resident, she is said to have paid HK$14.5 million for two flats and arrived here on a one-way permit years ago.

Units built under the scheme, which was advocated by Chief Executive Leung Chun-ying during his first year in office, can only be purchased and owned by local permanent residents for the first 30 years. The objective was to give Hong Kong residents priority in fulfilling their home-buying needs.