Stamping out Speculation
One of life’s sure things — taxes — is the next part of Hong Kong’s cooling measures
| Text : Elizabeth Kerr | Photo : www.thinkstockphotos.com |
The Hong Kong government’s latest attempt at cooling property prices has been announced. The idea? Raising stamp duties.
The move certainly has eyebrows raised. The Real Estate Developers’ Association claims the de facto tax hike will hurt end users looking for homes — not speculators that drive prices up — and lead to losses of up to 15 percent. Of course, there’s a loophole in the stamp duty rule: register the property to an overseas company and watch the duty go down or vanish entirely. Sounds ideal for speculators and investors, but not so great for the local guy in middle management at a trading company or a young woman just beginning a career in design. It also sounds like a fairly desperate move on Legco’s part.
“I wouldn’t really call it desperate. Raising the stamp duty is just another way of making people stop and think about what they’re doing, so in that way it may work,” said a local property agent who did not wish to be identified. “On the other hand, what’s a few thousand dollars if you’re already spending millions?”
The stamp duty on a property is, simply put, a tax levied on documents related to sales of “immovable property.” Everyone with a property pays it, and it is based on the value of the property. The duty, as of April, for properties up to $2 million was $100. Not too bad. Going up the ladder, the duty went up to $750,000 plus 10 percent on anything over the $20 million threshold. And on everything over $25 million the duty was a flat 4.25 percent. Depending on what you buy, it can already add up. “That tax can add several hundred thousand dollars to the ‘price’ of a home,” the agent explained. “It’s going to impact sales at the luxury end first, where the price can go up by one or two million dollars when you consider the stamp duty. I’m not sure it will impact entry-level buyers all that much.”
Other measures announced at the same time were increased down payments, which appears to be in direct opposition to the government’s efforts to stimulate home ownership within the so-called sandwich class. Demanding more cash up-front from the working class, fresh graduates, and young families seems like a step backwards. But Eva Cheng, Secretary for Housing and Transport, thinks serious homebuyers will be helped by reduced speculation. “Speculators don’t care about down payments,” said the anonymous agent. “They often have a lot of cash and a down payment of 5 percent, 15 percent, or 50 percent won’t affect them either way. However, the changes will definitely affect the middle class. Many people already struggle to put together 5 percent. I just don’t see how this will help the average man on the street.”
Regardless of who wins and who loses, industry analysts are predicting a major slide in both prices and transaction volume in the immediate future on the heels of the announcement. UBS is estimating transactions to slip upwards of 30 percent, and Credit Suisse thinks prices will drop 5 percent by the end of the year — at press time a little over 30 days away. Most developers, investment banks and fund managers see the measures as ultra-harsh, but as JP Morgan’s Lucia Kwong told The Standard, the measures are also a, “strong dose to calm down the housing market.” At this rate, the next part of the solution could be just as random, and 2011 is shaping up to a long strange trip indeed.
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