Taxes on luxury-home purchases go up, supply of apartments to rise
HONG KONG: Hong Kong will increase taxes on luxury-home purchases for the first time in more than a decade and boost the supply of apartments as a surge in prices last year fuels concerns that the market may be overheating.
Stamp duty on homes selling for more than HK$20 million (S$3.6 million) will rise to 4.25 per cent from 3.75 per cent beginning in April, Financial Secretary John Tsang said in his annual budget speech yesterday.
Buyers of these flats would no longer be allowed to defer payment of stamp duty. The measure could be extended if excessive speculation was detected in the trading of less expensive properties, he said.
The government will also put more residential sites up for auction, he added.
Mr Tsang warned that a recent property frenzy, driven by a huge inflow of more than HK$640 billion since late 2008, could threaten economic stability.
'If capital flows were to reverse or interest rates rebound, asset prices would become more volatile. This in turn may affect the stability of our financial system and the recovery of the real economy.'
Overall housing prices in Hong Kong rose above 30 per cent last year due to demand from wealthy mainland Chinese, tight land supply and loose monetary policy.
Mr Tsang said the government would strive to increase residential land supply, with plans to auction several urban residential sites in the next two years if market conditions allow.
He also pledged to prevent excessive expansion in mortgage lending.
Prices of some luxury flats returned to the peaks of the 1997 property boom last month, he said.
But some analysts said the moves unveiled by Mr Tsang would have limited effect.
'It doesn't help to cool the property prices. It can't because most of the luxury property buyers come from China. They will not care about a 4.25 per cent or even 5 per cent tax,' said Mr Castor Pang, head of research at Cinda International.
'They think property investments in Hong Kong are quite safe,' he added.
Mr Wong Leung-sing, head of research at Centaline Property Agency, said a bubble would still be created with Hong Kong's interest rates remaining low due to its currency peg to the US dollar.
He said: 'The economic boom in China and low interest rates in the United States are two major external factors that together will almost guarantee a property bubble in the next few years.'
Share prices of property firms rose after the budget speech as stock investors were relieved that the measures were much weaker than expected.
Ms Nicole Wong, a Hong Kong-based real estate analyst at CLSA Asia-Pacific Markets, said the stamp-duty increase was 'lip service' as the measure will affect only about 2 per cent of the property market.
Stimulus measures by governments around the world have boosted liquidity, which has led to large fund inflows into Asia, driving asset prices higher, Mr Tsang said.
Land sales and stamp duties were the major contributors to the government's surprise surplus of HK$13.8 billion for the 2009-2010 financial year, he added.
The government is 'cautiously optimistic' about Hong Kong's economy this year and expects it to grow by 4 per cent to 5 per cent.
The city emerged from its latest recession in the second quarter of 2009, when its gross domestic product rose 3.5 per cent on a quarterly basis after four consecutive quarters of contraction.
Source: Straits Times, 25 Feb 2010