Property stamp duty to rise in Hong Kong from tomorrow

Stamp duty on property purchases in Hong Kong is to be increased from tomorrow (Saturday 23 February), the Hong Kong government has announced, making its latest move in attempts to cool the real estate market.

Stamp duty rates for purchasing both domestic and non-domestic, will be increased from HK$100 to 1.5% of the property value for properties worth below HK$2 million, while the rates for properties worth above HK$2 million will be doubled, to up to 8.5% of the property value.

This applies to both individual and corporate buyers, but does not apply to first home purchases by Hong Kong residents in a bid to allow new local home makers to enter the market, while other limited exemptions were possible.

Additionally, as the government ups its determination to curb the property market bubble, the Hong Kong Monetary Authority has also tightened mortgage lending. Stress test for mortgage applicants has been tightened, while maximum loan to value ratios for all types of properties have also been lowered.

Thomas Lam, Head of Research and Consultancy, Greater China at Knight Frank, believes the new round of tightening measures will serve to dampen all types of property transaction volumes in the short term.

‘Knight Frank sees government's determination in curbing property market's asset bubble. We therefore maintain our previous forecast that residential property prices are likely to experience mild upward and downward movements of less than 5% in 2013 on the back of unchanged Hong Kong's fundamentals. We expect more tightening measures to come should property prices continue to increase,’ he said.

Hong Kong has some the world's most expensive real estate and Financial Secretary John Tsang said exuberance has regained momentum and the measures were needed to keep the potential economic risk from spreading in the financial hub.

‘The risk of an asset bubble is increasing. If we allow the bubble to grow, in the end it will affect the macro economy and also the stability of the financial system. It will be very damaging to society,’ Tsang explained at a press conference.
‘These measures will help narrow the supply demand gap, contribute to the stable development of our property market and the stability of our financial system,’ he added.

The government also said it would standardise the stamp duty regime for non residential properties such as shops, factory space, office space and even car parking spaces to avoid speculative hot money flowing into these other categories.
‘It will help forestall any possible shift in exuberance from the residential market to the non residential market by raising the costs,’ said Tsang.

The city's ultra low interest rate environment, tight supply and abundant liquidity, pushed property prices up 2% in January, he pointed out, while overall residential property prices have jumped 120% since 2008.

Since October 2009, the Hong Kong government has taken a series of steps to curb prices, including a 15% property tax on foreign buyers, mortgage restrictions and taxes on quick resales. However, home price pressures have continued to pose policy challenges for officials.

As Hong Kong felt an initial squeeze from property measures imposed in October, including the 15% tax on foreign buyers, private home sales in Singapore jumped nearly 30% in December from November.