Weekend Property

Reigning in surging home prices: latest stamp duty increase targets non first-time buyers

Government’s move is an indication of its concern about the sharp upturn in property prices since April, and is aimed at curbing the activity of investors in the market

PUBLISHED : Friday, 11 November, 2016, 12:58pm
UPDATED : Friday, 11 November, 2016, 6:34pm

What a difference a week makes in the high-octane world of Hong Kong’s property market. Until last Friday, property prices were on a strong upward trend across the city. However, the surprise came when Chief Executive Leung Chun-ying announced that the government was raising the property stamp duty for the second time in three years in an effort to curb runaway prices.

In a televised press conference, Leung said that effective November 4, the stamp duty on property transactions for non first-time buyers would be raised to 15 per cent for individuals and corporate buyers.

Analysts and property experts, however, say that investors, who were the target of the stamp duty rise, would find loopholes to bypass the new stamp duty and the property market is not expected to suffer a sharp downturn.

Nicholas Brooke, chairman of the Professional Property Services and an expert property commentator, says that the government did the right thing in raising the stamp duty. “The government is rightly concerned about the rising property prices. They needed to give a strong signal to the market that they are watching [the market] closely,” he says.

He reasoned that the government was forced to take the stamp duty decision as property prices have been galloping away since April. The recent land sale in Kai Tak, Kowloon East, where the bidder paid almost double the price of analysts expectations earlier this month, was the last straw. “The government said enough is enough” and took the decision to raise the stamp duty, Brooke suggests.

According to a research note by property consultants Colliers International private residential prices in Hong Kong have increased 8.9 per cent from April to September, while month-on-month growth accelerated to 2.7 per cent in September, the highest growth so far this year.

Colliers says that the number of residential transactions rebounded to 7,826 units in September, marking a record high since the launch of doubled stamp duty in February 2013.

Zac Tang, senior analyst, research at Colliers International, says the new stamp duty rate would have a bigger impact on the secondary market as the primary market is dominated by developers offering more selling incentives.

“We expect activity in the residential market to be subdued in the near term as buyers will probably emain cautious until they have fully absorbed the changes and reappraise their investment strategies,” Tang says.

Brooke says that property developers would step in to offer more incentives and sweeteners to second-home buyers as they have been doing for the last few months. A case in point is the Grand Yoho project in Yuen Long where developer Sun Hung Kai Properties offered homes at lower-than-expected prices and interest free loans to lure buyers away from rival projects.

The government is rightly concerned about the rising property prices. They needed to give a strong signal to the market that they are watching [the market] closely
Nicholas Brooke, chairman, Professional Property Services

Tang adds that despite the new stamp duty a combination of factors, such as depreciation of the yuan and new property curbs in mainland cities, would push the cross-border investors to take a second look at Hong Kong’s residential market.

Joseph Tsang, managing director of JLL Hong Kong, says the mainland’s wealthy investors had shown keen interest in the superluxury segment in Hong Kong, as the recent purchase of a superluxury house on The Peak by a mainland businessman for HK$2.1 billion shows.

Tsang adds that mainland buyers were more noticeable in new home sales in Hong Kong in the past few months, especially in the mid-market segment.

“A few years ago, when the buyer’s stamp duty came into force, and after the exclusion of real estate assets from the capital investment entrant scheme, home buying [by mainlanders] almost came to a standstill,” Tsang says.

Ricky Wong, managing director of Wheelock Properties, suggests that more than 20 per cent of buyers of Napa, the developer’s new project on sale in Tuen Mun, were from across the border.

Agents also reported a rise in interest from mainland homebuyers in some other new projects on sale., a property agency with branches on the mainland and in Hong Kong, says it would sell newbuild homes in Hong Kong to potential mainland buyers more proactively and organise more home viewing tours to the city for them.

Bank of America Merrill Lynch analysts say in a research note to clients that they believe there will be more mainland buyers in the Hong Kong real estate market in the near term as they seek to hedge against a depreciating yuan, which the bank forecast would weaken to 7.25 yuan (HK$8.30) against the US dollar by the end of 2017. As the Hong Kong dollar is pegged to the US dollar, some see Hong Kong’s real estate assets as a relatively safe bet, the note says.

And especially since major Chinese cities tightened rules on second home purchases earlier this year, it is evident that Chinese investors have been actively seeking to diversify away from the local property market by buying overseas.

The bank estimates that China’s capital outflows in the third quarter jumped 14 per cent from the second quarter to US$113 billion. But there is no figure showing exactly how much Chinese money has flown into Hong Kong’s real estate market.