A new Buyer’s Stamp Duty introduced for the residential property market in Hong Kong is likely to cool the sector, according to analysts, and if it doesn’t then more measures could be on the cards.

At the end of October, the Hong Kong government introduced the new BSD and extended and intensified the existing Special Stamp Duty (SSD).

Under the new policy, local and foreign companies as well as non-permanent Hong Kong residents have to pay an additional 15% BSD when buying homes in Hong Kong. Meanwhile, SSD has been extended for three years and rates have been raised from 15% to 20% for a resale within six months of purchase; from 10% to 15% for a resale within six to 12 months and from 5% to 10% for a resale within 12 to 36 months.

Following strong price growth in 2012, to date, the residential market is now likely to cool as a result of the new measures, according to the latest monthly report from Knight Frank.

It shows that the number of residential transactions totalled 71,012 in the first 10 months of 2012, but is expected to reach only 75,000 by the end of year, compared with 84,442 transactions in 2011.

Demand from speculators and investors is expected to be checked by the increased policy risks and investment costs. ‘This will be particularly apparent for primary residential projects, where a significant proportion of buyers are companies or mainlanders,’ says the report.

‘Developers, facing suppressed demand, are expected to become less aggressive while setting prices for pre-sale residential units and adjustments to selling strategies are also anticipated,’ it adds.
 
It also says that secondary home owners are likely to hold on to their properties or release them onto the leasing market, given the current low interest rate environment and new stamp duty policies. Potential buyers who cannot afford the high prices, or are waiting for a price drop, are expected to shift towards the leasing market. Therefore, the leasing sector is expected to remain strong with sustained supply and stable demand.

‘Speculators, having been deterred by the new policies, have shifted their focus towards non-residential sectors such as commercial, industrial and even car parking space. A significant increase in car parking space transactions was witnessed after the enforcement of the policy,’ says the report.

‘The trend for residential price movement will be uncertain in the short term. However, after the market has digested the negative impact of the new policies, we expect demand from buyers, including mainlanders and speculators, will return in the medium to long run. Prices of luxury homes should remain stable or experience mild price growth, due to limited supply,’ it explains.

‘However, we believe the government may launch further cooling measures if home prices start to rise significantly, again,’ it concludes.

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