Stamp duty on luxury property sales raised in Budget; supply of flats to increase

Hong Kong’s government yesterday raised the stamp duty on luxury property sales and warned that more such measures could follow – the clearest sign yet that officials there fear the consequences of a bubble forming, and then bursting, in the territory’s private- home market.

The transaction tax on properties worth more than HK$20 million (S$3.63 million) will be increased to 4.25 per cent on April 1, from 3.75 per cent now, Financial Secretary John Tsang said in his Budget speech yesterday. In addition, buyers will no longer be allowed to defer payment of stamp duty on such transactions.

The government may also raise the transaction tax on properties valued at HK$20 million or less, ‘if there is excessive speculation in the trading of these properties’, Mr Tsang warned.

An inflow of over HK$640 billion of funds into Hong Kong since the fourth quarter of 2008 has increased the risk of creating asset-price bubbles, he said. ‘We are also concerned that if capital flows were to reverse or interest rates rebound, asset prices would become more volatile. This in turn may affect the stability of our financial system and the recovery of the real economy.’

The large inflow of capital has also pushed up the prices of luxury flats, as well as smaller apartments, he said. Overall, property prices are 8 per cent above their peaks before the recent financial crisis; some luxury-flat prices have even returned to their peaks reached during the 1997 property boom, he added.

The rise in property prices has picked up again after slowing slightly in the fourth quarter of last year, and turnover has also increased, Mr Tsang said. He added that he was ‘particularly concerned’ that some people would be unable to meet their mortgage payments if interest rates rise from their current, unusually low, levels.

The government will also work to increase the supply of affordable flats, and will put up several urban residential land sites for sale by auction or tender in the next two years, if the sites have not been triggered by an application by a private developer, Mr Tsang said.

‘The measures are quite similar to those introduced recently by Singapore to rein in excessive exuberance in the residential property market,’ said Leonard Ong, executive director at KPMG Tax Services here. ‘The Hong Kong government is clearly concerned with the risk of a property bubble forming.’

Tracy Ho, tax partner at Ernst & Young in Hong Kong, said that the moves to cool the property market were not surprising, given the sky-high prices seen in a number of property transactions in recent months. ‘I wouldn’t call it unbelievable, but you wouldn’t think some of this would happen after the financial tsunami.’

The aim of raising the stamp duty ‘is really to increase the transaction costs for speculators, to cut down the speculative atmosphere’, she added.

Last October, the Hong Kong Monetary Authority reduced the loan-to-value limit on housing loans for properties worth HK$20 million or more to 60 per cent, from 70 per cent, and capped the maximum loan amount for cheaper properties at HK$12 million.

In Singapore, the government also introduced various measures late last year to curb speculation in the property market.

Last Friday, it announced a seller’s stamp duty to be levied on those who buy a residential property and sell it within a year, and lowered the loan-to-value limit on housing loans to 80 per cent, from 90 per cent.

Yesterday, Mr Tsang said he expects the Hong Kong economy to expand 4-5 per cent this year, after shrinking 2.7 per cent last year.

He also introduced several proposals to promote a ‘green economy’, including a HK$300 million fund to spur the transport industry to test energy-saving and low-carbon-emission transport technologies; a HK$540 million subsidy scheme to encourage the replacement of older, more polluting diesel commercial vehicles; and tax incentives to promote the use of environment-friendly commercial vehicles.

Source: Business Times, 25 Feb 2010