Stamp duty impacts Hong Kong property market with sales down almost 50%

The decision to raise stamp duty rates to 15% for all but local first time buyers in early November has led to a slowdown in sales in Hong Kong.

Residential sales fell by 47.3% month on month in December 2016 across all price ranges as the tax change combined with the holiday season to dampen the market.

However due to a robust new build market, residential sales across the whole of 2016 dropped by only 2.3% year on year, the latest analysis report from international real estate firm Knight Frank shows.

The report explains that even new build sales volumes were quiet in December, with a limited number of new launches because of the stamp duty rise. Resales were also sluggish as developers offered preferential terms to offset the effect of the heavy tax making these units less attractive.

But the super luxury property sector remained resilient, with a number of major transactions recorded over the course of the month.

The report also explains that the policy address announced in January reaffirmed the Hong Kong Government’s determination to increase the housing supply. The average annual supply is expected to reach 94,000 units in the coming three to four years, hitting an historic high.

But the Knight Frank analysis suggests that abundant supply, combined with economic and policy uncertainty, may drag down mass residential prices by about 5% this year.

Meanwhile, in the commercial sector Grade-A office rents on Hong Kong Island continued to go up in December. The report says that with the lack of space in Central some companies were forced to opt for offices outside the CBD, resulting in demand spilling over to nearby areas, such as Sheung Wan and Causeway Bay.

Looking ahead, Knight Frank expects the upward trend for office rents on Hong Kong Island to continue in 2017 and while Central looks set to outperform the market because of extremely tight availability. Over the year it predicts that Central office rents will increase by 3% to 5% while rents in other Hong Kong Island areas could increase by up to 2%.

In Kowloon there were not many major transactions in December as many companies delayed their leasing decisions until after the New Year, according to the report. Landlords continued to increase incentives to attract tenants.

It also points out that with abundant supply in the pipeline some companies have started to look into relocation or consolidation even though their leases are still far from expiry.

In 2017 Knight Frank expects the Kowloon leasing market to be very active, with abundant supply providing plenty of options for tenants. However, office rents will face further downward pressure falling by 3% to 5% in 2017.

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