Talk of The Town	Back to index

Money Matters

In most countries, the treasurer is the enemy who takes a chunk of income from wage earners, or imposes “sin taxes” on petrol, booze and cigarettes. But in Hong Kong, for three years, the government has curried favour with its people in the form of tax concessions and fee rebates.

Hong Kong has the lowest rates of income tax in the developed world. The government’s hands-off economic policies are laudable, and Hongkongers are in the lucky position of being able to choose what they want to do with most of their income instead of having that decision made for them.

This year, Financial Secretary John Tsang did take a few shots at the property market, in a HK$20 billion package of perks. It makes you wonder why a government that is so hands- off with the stock market feels the need to intervene in the property market. Would it step in with heavy curbs on stock sales, or insist new companies go public if it felt the Hang Seng was getting out of control?

There are a few main changes to note for property owners and prospective buyers. Tsang waived rates for the 2010 to 2011 tax year at a maximum of HK$1,500 per quarter. That means 90 percent of Hong Kong homes, and 60 percent of commercial buildings, won’t have to pay rates. It leaves home owners with a little more disposable cash every three months, but is unlikely to do much beyond that.

The budget raises stamp duty on homes worth more than HK$20 million to 4.25 percent, up from 3.75 percent. Buyers at that range also won’t be permitted to defer the payment. That translates to an extra HK$100,000 for a HK$20 million home, for which the buyer will now have to pay HK$850,000 to have the transaction recorded with the government. Stamp duty is the government’s main source of income from real estate, other than land sales. It must be paid in full and in cash. But most market watchers say it’s unlikely to make much difference to luxury buyers who are already putting down at least HK$8 million as a down payment.

“The measure might create a short-term consolidation on the number of sales transactions in the targeted market segment,” says Simon Lo, director of research and advisory services at Colliers International. But the upward trend is likely to continue if there’s demand, especially from buyers outside Hong Kong.

In any case, there are only 23,268 apartments of more than 1,700 square feet in Hong Kong – the kinds of properties that would command that kind of price. That’s two percent of the total residential stock.

The most significant measure might be an increase in land supply. Development Secretary Carrie Lam put six urban sites on the application list for sale, and one of the sites may be put up for auction or tender every five or six months even if the developers don’t trigger for it. When combined, they’ll produce 2,000 luxury flats, with one site at Borrett Road in Mid-Levels; one in Ho Man Tin; one on Inverness Road in Kowloon Tong; the former Lingnan College site on Stubbs Road; and an old government supplies depot on Oil Street in North Point.

The government always has to tread a mine-strewn path with land supply. It was a sudden change to dramatically ramp up supply that crashed the market in 1997. A lukewarm reaction to a forced sale would be bad for the market, Lo notes, but he expects the government to move very carefully this time.

There’s one last change with the application list. Lam announced a test scheme with a large residential lot in Yuen Long, where the government is going to require the developer to build a minimum number of flats, with a cap on the maximum and minimum size of the flats. We’ll have to see how that goes, but it should encourage builders to create affordable homes.