Hong Kong’s new stamp duty aimed at foreign buyers
|Wednesday, 07 November 2012|
The Hong Kong government has sought to cool the city’s notoriously pricey property market by announcing a special Buyer’s Stamp Duty (BSD) for non-local residents.
At 15%, the tax will apply to all residential property transactions for anybody not a permanent resident in the city.
But Adam Osborn, manager of the Schroder ISF Asia-Pacific Property Securities fund says that this does not solve the issue of cheap money that has come from the ultra low interest rates in the US.
‘The new Hong Kong government that took office in July has already tried to cool the red hot local property market but to no avail. However, the Government’s recent announcement was noted for its severity. The BSD is targeting foreign buyers, the majority of whom come from mainland China,’ he explained.
He also pointed out that another major issue is that demand far outstrips supply so there are plenty of buyers willing to pay top prices.
‘The new measure is set to hit volumes hardest and, as a result, we may see 5% to 10% declines in prices in the market. Although developers’ share prices came under pressure following the announcement we don’t see any major corrections as they now hold significantly less than half of their net asset values in residential property. The immediate impact, therefore, will most likely be a widening of the NAV discounts on their share prices, as a less liquid physical market will justify,’ said Osborn.
‘We maintain our view that over the long term, with the Hong Kong dollar pegged to the US dollar, interest rate policy in the US will remain the biggest risk factor for the Hong Kong housing market,’ he explained.
‘Indeed, this new tax is evidence of the cost of maintaining the peg. We remain committed to our focus on lower beta names in Hong Kong and particularly investment property companies, which have minimal residential exposure. Our exposure to other names with strong commercial portfolios and supportive yields means we are ideally placed to weather any headwinds arising from these measures,’ he added.
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