Following the introduction of Special Stamp Duty (SSD) and Buyer’s Stamp Duty (BSD), the government announced another property crackdown with the Double Stamp Duty (DSD). All these measures are geared towards putting an end to the ever-upward trends in the local property market.

The adjusted stamp duty rates are now twice as much as the original ones and the new maximum was raised from 4.25 to 8.5 percent. Such high rates dampen the incentive for short-term investors to purchase properties, yet this 4.5 percent increment has an impact on long-term investors: the “harsh” cooling measures may drive investors into a quick time out, strategise then return with a better game plan. 

Regardless of how harsh these cooling measures seem to be, there’s always room to move. The transfer of shares or corporate assets can become a popular approach for foreign investors. One way or the other, it will not be impossible to get around that 23.5 percent Stamp Duty.

With the substantial inflow of funds, thanks to the Quantitative Easing (QE), and low mortgage rates there is no urgency for homeowners to sell their properties quickly. That also means no significant growth in market supply.

In my opinion, not only do these cooling measures do little to slow the soaring market, they come with adverse side effects. As it stands, prospective buyers will simply shift to the rental market.

With a less strict duty rate and loan-to-value ratios on properties less than $4 million, small to mid-sized properties are becoming very attractive. Though the policy seems generous toward first-time homebuyers, they are also the buyer segment most vulnerable to market changes or rate increments.

It seems a little overly optimistic to bank on these government measures to cool down the property market. The side effects put more pressure on the market, creating the same vicious cycle: Higher demand, no significant growth, prices go up.

Indeed, some investors might leave the property market — residential or commercial — once and for all. But where will they go? The stock market seems a desirable destination. So, then what comes next? Should we expect cooling measures on stocks? Not too long ago, Hong Kong was known as a free market. What have we become?

Published on 8th Mar, 2013

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