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Buyers look at a model of The Reach project at Yuen Long. Non-local buyers will have to pay a new 15 per cent tax. Photo: Sam Tsang

October 27, 2012: Non-locals in Hong Kong hit with new property tax

  • Mainland investors rush to snap up flats at new Yuen Long project before the midnight introduction of the 15pc Buyer’s Stamp Duty
This article was first published in the South China Morning Post on October 27, 2012. It has been republished online as part of Hong Kong 25, which looks at how the city has changed since the handover, and what its future holds.

By Joyce Ng, Amy Nip and Joshua But

An increased stamp duty of 15 per cent has been imposed on home ownership by non-locals and companies to deter the further flow of hot money into the city, a measure that market watchers describe as tough.

The Buyer’s Stamp Duty took effect at midnight. Two hours after its announcement, at 6pm, mainlanders were seen at the sales office of The Reach estate, scrambling for new homes so as to avoid the new tax. The two developers of the Yuen Long project launched its sales yesterday, a day earlier than scheduled.

The property sector expects market prices and sales volumes to drop at least 10 per cent. But market watchers also warn the measures may only divert cash to commercial and industrial properties, pushing up rents for businesses.

The new rule sets non-local and corporate purchases apart from acquisitions by permanent residents, who will still pay between HK$100 and 4.25 per cent of the sale price.

Announcing what he called “extraordinary measures under exceptional circumstances”, Financial Secretary John Tsang Chun-wah said hot money had been flowing into the city faster than before.

Financial Secretary John Tsang announces the new property cooling measures, which took effect at midnight. Photo: Felix Wong

“The property market and the general economy are heading in different directions. People find home prices unaffordable,” Tsang said, citing a 21 per cent price rise for small and medium flats in the past nine months.

“Prices in the third quarter have been fuelled further,” he said, referring to the third round of monetary easing in the United States. “The risk of a property bubble forming is increasing. This may undermine macroeconomic conditions of the community and the stability of our financial system, threatening people’s livelihoods.”

He noted that the ultra-low interest rate environment would continue until mid-2015.

The Buyer’s Stamp Duty exempts permanent residents who purchase under their own names, meaning it affects non-local and local and overseas company buyers.

The 15 per cent rate is higher than the Additional Buyer’s Stamp Duty introduced in Singapore last year, which imposes 10 per cent of the property value on foreigners and non-individual buyers.

Buyers who were not permanent residents accounted for 19.5 per cent of primary market transactions last year, up from 5.7 per cent in 2008.

The front page of the South China Morning Post on October 27, 2012.

In a second measure, the government raised by 5 percentage points the rates of an across-the-board “special stamp duty” to curb speculation, and extended the limit on resales from two to three years. A fee of 10 to 20 per cent of the price is payable if the property is resold in the period.

David Ng Ka-chun, head of China and Hong Kong research at Macquarie Capital Securities, said: “At least 20 per cent of primary market demand will be cut directly by the higher tax.”

The new tax prompted a rush of mainlanders to buy before the “deadline”. At the Tsim Sha Tsui sales office of The Reach, a woman arrived at 8pm and said she was queueing for a Shenzhen friend who was making a late-night dash across the border.

Chan said her friend wanted to buy a flat to support the education of her child, born in Hong Kong. “She plans to use HK$14 million to buy two flats and then combine them into one.”