Residential property sales in Hong Kong fell after the government doubled a sales tax, saying bubble risks are spreading in the world’s most expensive place to buy an apartment.
Secondary sales for the 15 most popular housing estates fell 15 percent at the weekend from the previous weekend, according to Buggle Lau, chief analyst at Midland Holdings Ltd., the city’s biggest publicly traded realtor. The stamp duty on all properties above HK$2 million ($258,000) was raised to as much as 8.5 percent of the purchase price.
Chief Executive Leung Chun-ying’s latest attempt to cool the city’s real estate market sent shares of developers and realtors lower amid concerns that transactions will dry up and prices will decline. Since taking office in July, Leung has added extra property taxes, favored local permanent residents, tightened mortgages and increased supply after home prices doubled in the past four years on near-record low mortgage rates, an influx of mainland Chinese buyers and a lack of new units.
“The government intends to turn away yield seeking investors from all property markets,” JPMorgan & Chase Co. analysts, led by Lucia Kwong, wrote in a report today. “Developers may see 5 to 10 percent share price downside.”
The Hang Seng Property Index, which tracks the shares of the city’s nine biggest developers, fell for a seventh consecutive session, the longest losing streak since the seven sessions to May 14. It fell 0.3 percent at the close to the lowest in almost two months, after declining as much as 1.7 percent. The index has outperformed the Hang Seng Index in the past 12 months, gaining 14 percent compared to the benchmark’s 7.6 percent.
Midland, the largest realtor traded in Hong Kong, fell 4.4 percent to HK$3.48, the most and lowest in three months. Cheung Kong (Holdings) Ltd., the city’s second-biggest developer by market value, slid 0.6 percent to the lowest since Dec. 4, while Sun Hung Kai Properties Ltd., the biggest developer by market value, declined 1.3 percent.
The government widened its property curbs to cover commercial transactions as investors turned to parking spaces, shops and hotels. Earlier last week hundreds of people turned up to buy hotel rooms being sold by Li Ka-shing’s Cheung Kong in the city, prompting a warning from the government.
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.
“These measures will likely be effective in slowing the uptrend of property prices,” Deutsche Bank AG strategist Lin Li and chief economist Jun Ma wrote in a report today.
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, Hong Kong Financial Secretary John Tsang said at a briefing Feb. 22.
The measures took effect Feb. 23 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, 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. It is the world’s most expensive place to buy an apartment, according to London-based property broker Savills Plc.
“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 Hong Kong Monetary Authority said Feb. 22 it will tighten mortgage terms for commercial properties and parking spaces. 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.
Concerns that housing is becoming unaffordable have forced the city’s chief executive 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.
In September, he said 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.
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.
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.
“Developers may delay new launches of apartments for two to three months or until they believe buyers have finished adjusting to the new measures,” said Alfred Lau, analyst at Bocom International Holdings Co. “As with previous measures, there probably won’t be too much impact on prices, but transactions could dry up further by as much as 50 percent.”