Hong Kong should drop plans to impose new taxes on short-term home sales to avoid damaging the city’s reputation as a free market, according to shareholder activist David Webb, who will speak to lawmakers on the issue today.
The government on Nov. 19 intensified a yearlong battle to curb surging home prices with additional taxes and policies after the International Monetary Fund warned that asset inflation may derail the city’s economy. Homes sold within six months of purchase now incur a 15 percent stamp duty, on top of existing taxes.
“Stamp duty, in itself, should be abolished,” Webb, the Hong Kong-based publisher of the 13-year-old Webb-site.com, said in an interview in the city today. “The government needs to stand back and let the whole thing burst. That’s the proper way of handling a bubble.”
Webb’s criticism of the measure follows comments by Mark McCombe, the local head of HSBC Holdings Plc, the city’s biggest bank by deposits and customers. McCombe said in an interview last month any additional government measures to cool gains in home prices would run the risk of crimping demand among “real buyers” as well as property speculators.
The stamp duty “is going to hit a lot of unintended victims,” Webb said. “During a downturn people who can’t pay their mortgage will have to sell something they bought six months ago and take a loss.’
Hong Kong was last month ranked as the most investor-friendly economy in the Asia-Pacific region, according to a survey by Vriens & Partners Pte.
Watching Bubble Form
“As a responsible government, we can’t stand by and watch a property bubble forming,” Leo Law, a spokesman for the government’s Transport and Housing Bureau, wrote in an e-mail reply to queries. The stamp duty “shouldn’t affect genuine homebuyers and long-term investors, who’re unlikely to sell their flats over a 24-month period.”
The bill to impose the additional stamp duty requires approval by the Legislative Council before it becomes effective. James To, a legislator from the Democratic Party who is also the chairman of the bills committee on the stamp duty, said his party supports the use of additional taxes to curb speculation.
“The proposed tax rate is a bit on the high side but it’s still acceptable,” To said. “We still need to work out details including whether we should make this a permanent law or whether we should grant exemption to special circumstances, such as buyers who can prove that they need the money for medical emergencies.”
The city’s home sales may fall as much as 35 percent this year because of the additional stamp duties and higher mortgage payments, according to a report last month by Midland Holdings Ltd., Hong Kong’s biggest property brokerage by market value.
Home prices, which have risen more than 55 percent since early 2009, were little changed since the new curbs were introduced, according to an index by Centaline Property Agency Ltd., the city’s biggest closely held real estate brokerage.
Under the new measures, properties resold within 6 months to 12 months will incur an extra 10 percent stamp duty, while those resold between 12 months and 24 months will be charged 5 percent. The levy will be split between buyers and sellers.
Down payments for homes that cost at least HK$12 million ($1.5 million) will be raised to 50 percent from 40 percent, while those between HK$8 million and HK$12 million will be raised to 40 percent from 30 percent. The maximum loan to value of investment properties will be lowered to 50 percent.
‘Right of Disposal’
Webb said the stamp duty increase goes against Hong Kong’s Basic Law, the mini-constitution put in place to govern the city when Britain returned its former colony to China in 1997.
The Basic Law “says you have a right to own, acquire and dispose of a property,” Webb said. “If you start restricting the right of disposal, you’re restricting a constitutional right.”
The property market’s rebound from the global financial crisis was powered by falling interest rates, an expanding economy and an influx of buyers from mainland China. Banks rushed to undercut each other on mortgage costs as they vied to lock in new customers and sell them additional financial services.
Hong Kong’s currency peg to the U.S. dollar prevents its de-facto central bank from raising interest rates to deter speculation.