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Hong Kong stamp duty

Hong Kong's property curbs likely to stay until prices fall further

Increased supply and rising interest rates could see prices fall by 20 per cent, but until this happens the cooling measures will likely stay in place

PUBLISHED : Wednesday, 21 August, 2013, 12:00am
UPDATED : Wednesday, 21 August, 2013, 3:11am

Pleas by real estate agents for the Hong Kong government to relax its measures aimed at cooling down the property market are likely to fall on deaf ears until prices have fallen further, say analysts.

"We are only likely to see some relaxation in the measures once home prices have fallen by 15 to 20 per cent - and even then the administration will be careful about which measures it will relax," said Andrew Lawrence, managing director of equities research for real estate at Malaysia-based investment bank CIMB Securities.

Echoing these views, Bocom International property analyst Alfred Lau said increased housing supply and rising interest rates could combine to bring house prices down by as much 20 per cent over the next three or four years, and until this happened the cooling measures were likely to remain in place.

Interest rates were likely to begin rising next year and new supply would come on stream in 2016 and 2017, said Lau. Every one percentage point rise in mortgage rates could translate into a fall in home prices of up to 6 per cent, he added, and mortgage rates could more than double from their present 2.2 per cent to 5 per cent.

"The government will not lift the measures until this correction gets under way," said Lau.

Chief executive Leung Chun-ying said on Sunday he understood the curbs had affected the business of property agents and other home services, but defended the measures because, he said, they had been effective in cooling down the red-hot market.

On August 5, Leung wrote in his blog that the government would neither relax nor withdraw its property-cooling measures as hot cash remained abundant in the global market.

Lawrence, one of the most bearish property analysts in the city, said limited first-time buyer demand, increasing supply, and the potential rise in interest rates could see home prices fall by 10 to 15 per cent next year, and a further 15 to 20 per cent in 2015, and the government would not withdraw its measures until this correction got under way.

Property agents took to the streets in protest on July 7 to urge the government to ease the cooling measures, complaining that their business was suffering from huge drops in commission incomes.

They threatened "more radical moves", including camping outside government headquarters in Admiralty if the government maintained its doubling of stamp duty, which agents say is to blame for a massive decrease in sales.

Home sales are running at 43 per cent below the level in February before the government announced it would double stamp duty on purchases of all properties valued at more than HK$2 million.

But prices have so far barely budged despite the sharp fall in sales, and the benchmark Centa-City Leading Index stood at 119.3 for the week ended August 11, versus a mid-March peak of 123.66 - a fall of 3.5 per cent versus the 20 per cent fall in sales transactions over the same period.

The resilience of prices would ensure that the government's measures remained in place for the time being, said CIMB's Lawrence. When the government did act its first step would likely be a relaxation of loan ceilings rather than a cut in stamp duties.

The Legislative Council, now in its summer recess, has yet to pass two bills to impose three new property taxes: a 15 per cent "buyer's stamp duty" levied on foreign and corporate buyers of residential flats; a "special stamp duty" on the resale of flats within three years, up from two years and levied at higher rates; and a doubling of stamp duty for all buyers of all types of property except Hong Kong permanent residents who don't already own a flat.

Though yet to be given the formal nod by Legco, the measures are already being applied.