Hong Kong Home Prices Set to Plunge on Policy Change

  • Stamp duty increased to 15% for all residential transactions
  • New measures expected have an immediate impact, analysts say

China Property Curbs Start to Bite

Hong Kong leaders’ surprise move to cool the world’s least affordable home market is set to spur an immediate plunge in prices and transactions as buyers and sellers hit the pause button.

Louis Chan, chief executive of the residential unit of Centaline Property Agency Ltd., sees transaction volumes plunging by 60 percent to 70 percent in the next three months, and now expects a 5 percent to 8 percent drop in prices, after previously projecting an increase in that range. Ricacorp Properties Ltd.’s Willy Liu said transactions will drop 30 percent to 40 percent in the next two months and prices will fall 5 percent.

The curbs sent developer stocks tumbling on Monday. Cheung Kong Property Holdings Ltd. plunged 8.9 percent, the most since its June 2015 listing. Sun Hung Kai Properties Ltd. dropped 9.7 percent and Henderson Land Development Co. fell 6.2 percent. The Hang Seng Properties Index slipped the most since January.

“The action is likely to have an immediate impact on the market, with turnovers and property prices obviously pressured in a short period,” Ricacorp’s Liu said. “Small and medium-sized properties will be among the first to bear the brunt.”

Developers have already moved to suspend sales in the city, the South China Morning Post reported, with Sun Hung Kai, Henderson Land and New World Development Co. cited as among those halting sales. Bank of America Corp. downgraded its ratings on Sun Hung Kan and New World, saying the higher stamp duty will “impact” about 25 percent of property transactions.

Mainland Buyers

Hong Kong Chief Executive Leung Chun-ying is taking additional steps to cool the world’s costliest property market, where prices have rebounded after a short-lived dip amid demand from local and mainland Chinese buyers. Surging prices have fueled rising discontent in Hong Kong, where it takes an estimated 19 years of median household income to buy a home, according to Demographia, putting property outside the reach of the vast majority of citizens. Demographia last year found prices in the city the least affordable it’s measured in 11 years of surveying large urban markets.

In a televised conference including the city’s top-ranking officials, the government announced plans Friday to raise the stamp duty to 15 percent for all residential purchases -- except for first-time buyers who are permanent residents. Until now, the highest levy for residents was 8.5 percent, while foreigners already paid a 15 percent stamp duty.

The changes mean foreign buyers will now pay an effective 30 percent stamp duty.

Hong Kong Chief Executive Leung Chun-ying (R) listens to Financial Secretary John Tsang during a news conference in Hong Kong on November 4, 2016. / AFP / ANTHONY WALLACE        (Photo credit should read ANTHONY WALLACE/AFP/Getty Images)

Hong Kong Chief Executive Leung Chun-ying listens to Financial Secretary John Tsang during a news conference in Hong Kong on November 4, 2016.

Photographer: Anthony Wallace/AFP via Getty Images

“The magnitude of the stamp duty increase is a little surprising," said Alan Jin, an analyst at Mizuho Securities Asia Ltd., estimating that transaction volumes will fall by 30 percent.

Mainland buyers hedging against a falling yuan and an abundance of financing have undone the government’s previous attempts to make housing more affordable. Senior officials also voiced concern that soaring prices could threaten financial stability.

Bubble Risk

“Property risks have been increasing with the rapid surge of prices and transactions," Financial Secretary John Tsang said Friday. “We have to prevent the risk of property bubble from worsening, which in turn can threaten our economy and even the stability of the financial system.”

The rebound in home prices has complicated any re-election bid by the unpopular Leung, who has touted cooling measures as a central achievement of his five years in office. The China-backed chief executive hasn’t said whether he intends to seek a second term in March, when a committee of electors dominated by Beijing loyalists is expected to pick someone to lead the city until 2022.

Other potential candidates include Tsang, who was seated to Leung’s right when the latest cooling measures where announced Friday. Tsang has declined to comment on local media reports that he has informed the Chinese government of his desire to resign and challenge Leung.

The Centaline Property Centa-City Leading Index, which tracks sales in the secondary market, has rallied 13 percent since reaching a low point in March. The index is now just 2 percent shy of the record it reached last September.

Hong Kong’s resurgent property market poses a headache for Leung, who had been touting his success in curbing prices ahead of a March vote to determine the city’s leadership for the next five years. Leung has introduced a raft of measures to cool the housing market since 2012 and his record may weigh on China’s decision whether to keep backing him.

“Not only young families can’t afford housing, but even for those who can afford, they have to live in smaller apartments because of the issue of property prices," Leung said.

— With assistance by Moxy Ying, Brendan Scott, Alfred Liu, Lisa Pham, and Jasmine Wang

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