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Hong Kong enters a new phase and a seemingly stalled market

In the past weeks, the government has shown its determination to cool off the property market with the back-to-back launches of the Buyer’s Stamp Duty (BSD), the Special Stamp Duty (SSD) and the Double Stamp Duty (DSD). All these cooling are designed to cool off an overheated market.

These back-to-back cooling measures are creating a lot of noise in the market, yet it only took the market a short while to recover from the initial launch. Now, with this second round of tightening measures, what will happen to our property market?
 
Leasing in the Secondary Market Prevails
The immediate response was definitely a shocker. Many first-time homebuyers and trade-up owners are putting the breaks on their purchase plans. Instead, they are taking the rental options as safe houses to ride out the expected storm.

It is obvious that with the additional 4.25 percent, a total of 8.5 percent, the DSD has raised the cost for investors. Yet relatively low interest rates allow investors to switch their resale plans to rental units, converting their short-term investments into medium-term rental investments.

There’s no doubt the second hand residential market is taking a quick freeze, but rentals are picking up momentum. The latest rental prices have hit new highs across popular districts. It’s clear that the demand for residential units remains high even though the volume of property viewing is on the slide.



Compared to private residential markets, the subsidised market seems to be shielded off from these latest cooling measures. Transaction costs in this market are much lower and most of these buyers are first-time homeowners, which are beyond the reach of the extra costs generated by the BSD, SSD or the DSD.

An Upturn in the Primary Market
Developers are keen to continue their dominance in driving the market. Some offer up to 10 percent incentives to offset the increased stamp duties as a countermeasure for the cooling measures. With more new developments to be released in the coming months, don’t be surprised to see transactions, investors or users, rushing towards to primary residential market.

While new development sales incentives will help speed up the recovery of the primary residential market, the secondary market isn’t necessarily facing a downturn. It is likely that the secondary residential market will be supported by leasing and low-priced properties while the primary market waits to be rekindled with more home sales offers in place.