Stamp duty increase set to slow down property sales in Hong Kong

hongkong

An increase in stamp duty rates in Hong Kong is expected to drag down the number of residential sales but prices should remain steady due to strong end-user demand and a robust primary market.

Overall the property market remained active in October with sales volumes reaching 6,601 units, doubling the level of a year ago, according to the Land Registry while prices rose for the sixth consecutive month, representing cumulative growth of 8.9% from April to October, according to the Rating and Valuation Department.

The latest monthly analysis report from international real estate firm Knight Frank said that the primary sector continued to dominate, with several new developments oversubscribed in October.

For example, Alto Residences in Tseung Kwan O sold over 98% of its 363 units in the first batch of sales, while 2gether in Tuen Mun sold over 74% of its 222 units on the first day of launch.

The super luxury sector remained strong, with a unit in Mount Nicholson on the Peak selling for HK$749 million, or HK$85,000 per square foot, making it the most expensive flat in the project.

Mainland developers remained active in Hong Kong’s land sales market. One acquired a residential site in Kai Tak last month for an accommodation value of as high as HK$13,500 per square foot, nearly doubling the market evaluation.

Knight Frank explains that to reign in rises in home prices, the government raised the Double Stamp Duty rate to 15% in early November. ‘The policy is expected to push investors into non-domestic sectors and home buyers to the primary market, with developers offering various sweeteners to compensate for the tax payment,’ the report says.

‘This, combined with seasonal effects, is expected to slow down residential sales in November and December. Home prices, however, look to remain stable until the end of the year,’ it added.

The report also looked at the commercial sector and pointed out that Grade-A office leasing was slow in October, both on Hong Kong Island due to limited availability and in Kowloon due to seasonal factors towards the year end. However, the sales market remained active.

The Grade-A office leasing market remained quiet on Hong Kong Island, as leasing activities were limited by the lack of availability, the report explained. Despite the low take-up, the Central vacancy rate remained at the very low level of 1.6%. There were not many large scale leasing transactions in Kowloon last month, with companies slowing down their relocation or consolidation plans towards the year end.

‘Given abundant office supply, landlords continued to increase their rental discounts and started offering more non-financial incentives to attract tenants,’ the report pointed out.

In the sales market, another mega transaction was recorded in October when Swire Properties announced the sale of its Kowloon Bay project, now under construction, for HK$6.528 billion or HK$11,761 per square foot, beating the previous record high set by One HarbourGate, which sold for HK$5.85 billion, becoming the largest office transaction ever in Kowloon.

‘Looking ahead, we expect office rents in core business areas to remain high in the next few months, with vacancy rates staying low in most major business districts. Tight availability on Hong Kong Island is expected to linger until 2018, when major projects such as One Taikoo Place in Island East are completed,’ the report added.

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