Hong Kong Increases Tax on Property Resold Within Two Years to Cool Market
Hong Kong Said to Plan New Property Curbs
Kevin Lee/Bloomberg
Two women look at property listings in the window of an estate agency in Hong Kong.
Two women look at property listings in the window of an estate agency in Hong Kong. Photographer: Kevin Lee/Bloomberg
Hong Kong intensified a yearlong battle to curb surging home prices with additional taxes and higher down payments a day after the International Monetary Fund warned that asset inflation may derail the city’s economy.
Homes sold within six months of purchase will incur a 15 percent stamp duty from today, Financial Secretary John Tsang said in a briefing yesterday. Down payments for homes costing HK$12 million ($1.5 million) or more will rise to 50 percent, from 40 percent. A stock gauge of developers in Hong Kong fell for the eighth day in nine ahead of the announcements.
“The measures will likely have the biggest and most lasting impact on property prices seen to date,” Donna Kwok, a Hong Kong-based economist at HSBC Holdings Plc, said in a report. “Hong Kong has jumped onto the band wagon of Asian central banks and is erecting its own defenses to fend off the flood” of capital from the U.S. easing.
Governments from South Korea to Brazil are seeking to stem fund inflows into their higher-yielding markets after the U.S. Federal Reserve’s expanded monetary stimulus. Hong Kong is acting after home prices rose more than 50 percent since the beginning of 2009. The island’s currency peg to the dollar prevents its de-facto central bank from raising interest rates.
Curbing Threats
“The unusual surge in flat prices has attracted speculators; this coupled with quantitative easing measures have distorted the market expectation regarding inflation and asset prices,” Tsang said. “The government is resolute in maintaining economic stability and curbing any threat to people’s livelihoods.”
Policy makers in Singapore share Tsang’s concern that housing price gains may make homes unaffordable to locals. In August, Singapore tightened mortgages and levied a stamp duty on all sales of residential units and land within three years of the purchase date.
The Hang Seng Property Index, which tracks the city’s seven-biggest builders, fell 1.3 percent yesterday to the lowest since Oct. 29. It has declined 7.6 percent since this year’s peak on Nov. 8. It ended the week 4.1 percent lower, its biggest weekly drop since the five days ended May 7.
Stamp Duty
Properties resold within 6 months to 12 months will incur a 10 percent stamp duty, while those resold from 12 months to 24 months will be charged 5 percent, Tsang said yesterday. The stamp duty will be split between buyers and sellers, he said.
Down payments for homes costing between HK$8 million and HK$12 million will be increased to 40 percent from 30 percent, Hong Kong Monetary Authority Chief Executive Norman Chan said yesterday. The maximum loan to value for non-owner occupied residential properties will be lowered to 50 percent, Chan said.
‘Deter Speculation’
The additional stamp duty “is quite substantial and is a way to deter speculation,” said Benedict Ma, Hong Kong-based associate director of research at CB Richard Ellis Group Inc., the world’s biggest real-estate services firm. “Investors, especially those in the luxury market, will have to reassess whether this is really the right time to get into the market.”
Government-backed Hong Kong Mortgage Corp. will introduce a cap of HK$6.8 million on the value of properties it covers, it said in a statement.
The new measures would “impact on market sentiment, leading to a fall in home sales volume,” said David Ng, a Hong Kong-based property analyst at Royal Bank of Scotland Plc. “Home prices won’t see a decline immediately as speculators could still keep their stocks in the low interest rate environment.”
The IMF said in a report this week Hong Kong’s accelerating asset inflation risks causing a bust that leads to deflation and an extended economic “downturn,” and urged further measures to rein in prices. The city has raised down-payment ratios and boosted land supply to curb prices, which surpassed a 1997 peak on the back of record-low mortgage rates and an influx of mainland Chinese buyers.
Hong Kong Measures
In April, Hong Kong raised the tax on homes selling for more than HK$20 million to 4.25 percent from 3.75 percent.
The government announced Aug. 13 it’s tightening lending rules on luxury and investment properties and increasing land supply to curb prices. Down payments for apartments costing HK$12 million or more and for investment properties were raised to 40 percent, from 30 percent.
Home prices have since risen 5 percent, according to Centaline Property Agency Ltd., the city’s biggest privately held real-estate brokerage.
Cooling measures have come “late,” said Justin Chiu, executive director at Cheung Kong (Holdings) Ltd., controlled by Hong Kong’s richest man Li Ka-shing. The measures target short- term speculation, which was less than 5 percent of total home sales, Chiu said yesterday.
Supply Boost
Chief Executive Donald Tsang said in his Oct. 13 policy address the government will stop offering residency to foreigners who buy property in the city.
South Korea revived a tax on foreigners investing in its bonds this week; Thailand is ending foreigners’ 15 percent tax exemption on income from domestic bonds, while Brazil tripled a tax on purchases of local fixed-income assets by overseas investors.
Hong Kong’s government also is cracking down on marketing tactics it has described as deceptive. It plans to restrict common features, including clubhouses, developers claim as part of apartments, to 10 percent of gross floor area from April 2011.
To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net
To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.netoomberg.net
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