Hong Kong doubled the sales tax on property costing more than HK$2 million ($258,000) and targeted commercial real estate for the first time as bubble risks spread from apartments to parking spaces, shops and hotels.
The stamp duty will increase to 8.5 percent of the purchase price for all properties, Hong Kong Financial Secretary John Tsang said at a briefing yesterday. The Hong Kong Monetary Authority also tightened mortgage terms for commercial properties and parking spaces.
The government widened its property curbs to cover commercial transactions after earlier this week hundreds of people turned up to buy hotel rooms being sold by Li Ka-shing’s Cheung Kong (Holdings) Ltd. in the city, prompting a warning from the government. Home prices have doubled in the past four years on near-record low mortgage rates, an influx of mainland Chinese buyers and a lack of new supply.
“This again shows the government’s determination to curb prices,” said Thomas Lam, head of research for Greater China at Knight Frank LLP. “It will affect the luxury residential sector and also investors of buildings and commercial properties. This will add a lot to their purchasing cost.”
The value of retail shop transactions rose 78 percent from a year earlier to HK$85 billion in 2012, as curbs on home prices prompted investors to seek other properties, according to Centaline Property Agency Ltd., the city’s biggest closely held realtor. That’s the highest since at least 1996, when the realtor began collecting data.
Hong Kong’s curbs come after Singapore introduced measures last month that included an increase in the stamp duty for homebuyers by between 5 percentage points and 7 percentage points and a stamp duty for sellers of industrial buildings, starting at 15 percent if the property is sold within a year.
Under the new rules, Hong Kong property deals below HK$2 million will incur stamp duty of 1.5 percent of the purchase price, from HK$100. The tax for those over HK$2 million will be raised to as much as 8.5 percent from 4.25 percent, Tsang said.
The measures take effect today and local permanent residents who don’t own homes will be exempted.
Buyers of non-residential properties will be required to pay stamp duties when they sign the purchase agreement, he said.
Prices of offices rose 23 percent in 2012, while those of retail spaces advanced 39 percent, Tsang said.
Hong Kong has the world’s highest shop rents and is the world’s second-most expensive place to rent office space, property brokers, including CBRE Group Inc. and Cushman & Wakefield Inc., have said.
“The property market bubble risks have only increased and not decreased,” Tsang said. “If we allow the risk to continue to expand, ultimately it will affect the macroeconomic and financial system’s stability. The destructive power on society will be considerably large. The price of non-residential property has also soared.”
The HKMA will require banks to lower the maximum mortgage loan-to-value ratio on commercial properties by 10 percentage points, Norman Chan, chief executive of the authority, said in a separate briefing yesterday. The monetary authority is also limiting the maximum mortgage for carpark space to 40 percent of the value, with a 15 year-cap on the length of the loan.
Concerns that housing is becoming unaffordable has forced Chief Executive Leung Chun-ying to introduce a raft of measures since taking over in July as the city’s leader.
Leung’s government in October imposed an extra 15 percent tax on all home purchases by companies and non-permanent residents, adding to earlier steps including accelerating new home sale approvals and tightening banks’ mortgage lending.
Leung said in September he will restrict homebuyers of two building sites the government plans to sell to local residents, a week after announcing a 10-point package to rein in prices, including accelerating new home sale approval and giving preference to local buyers.
“The government probably senses that property prices are still going up even after the last round of curbs,” in October, Simon Lo, Hong Kong-based head of research and consultancy at Colliers International, said in a phone interview yesterday before the new measures were announced. “They feel it’s time to act again.”
Leung said in his policy address last month that the government will provide land to build 75,000 homes in the next five years, and the private sector may sell 67,000 in the next three to four years. The total of 142,000 compares with the 124,000 built in the previous five years.
Household debt in the city is near historic high levels, the HKMA’s Chan said Feb. 4, citing ratios of 58 percent to 59 percent of gross domestic product in the third and fourth quarters.
Overheating in the housing market is the biggest risk to financial stability, Chan said, echoing a warning in December from the International Monetary Fund.
Hong Kong’s central bank last tightened mortgage lending in September after saying the U.S. Federal Reserve’s latest quantitative easing risks pushing up home prices that have already surpassed their October 1997 peak. That marked the start of a 70 percent decline to August 2003 as measured by the Centaline index.
Hong Kong banks’ borrowing costs are tied to the U.S. because of the currency peg, while the city’s economic growth is linked to China.
Hong Kong is the world’s most expensive place to buy an apartment, according to London-based property broker Savills Plc.
The Hang Seng Property Index has risen 29 percent since Leung took over as Hong Kong’s leader in July, compared with the 17 percent gain in the benchmark Hang Seng Index.
Hong Kong homes cost 13.5 times the gross median household income, up from 12.6 times a year ago, the most expensive housing market in an annual affordability survey by Belleville, Illinois-based consulting company Demographia released last month. The survey examined housing prices in Australia, Canada, Hong Kong, Ireland, New Zealand, the U.K. and the U.S.
A reading of 5.1 or more is considered “severely unaffordable,” while below 3 is seen as affordable.