Hong Kong's government announced its first property tax targeted at overseas buyers, stepping up efforts to cool home prices as U.S. monetary easing and record-low interest rates raise the risk of a bubble.
Nonlocal and corporate buyers will have to pay a 15 percent tax upon purchase, Financial Secretary John Tsang told reporters at a news conference yesterday. The government also raised a resale tax on property by about 5 percentage points and extended the period during which it will apply to three years from two.
Hong Kong is imposing its third set of property curbs in two months after home prices almost doubled over three years to become the world's most expensive. The city's de-facto central bank was forced to defend the currency's peg to the U.S. dollar for the first time since 2009 this month as the Federal Reserve's third round of quantitative easing sparked an inflow of cash into the city.
"These measures will be effective in reducing the number of transactions, but ineffective in curbing the property prices," said Cusson Leung, a Hong Kong-based property analyst at Credit Suisse Group AG. "The nonlocal buyers' stamp duty is more of a PR stunt as it responds to Hong Kong homebuyers' demand to raise the barrier for foreign investors."
Record low mortgage rates, an influx of buyers from other parts of China and a lack of new supply have been underpinning the Hong Kong property market, prompting Chief Executive Leung Chun-ying, who was sworn in as the city's leader in July, to accelerate land sales and give preference to local buyers in some projects.
The nine-member Hang Seng Property Index has jumped 30 percent this year, driving the benchmark Hang Seng Index to the highest in more than 12 months this week.
Property owners who sell their homes within six months of their purchase will need to pay a 20 percent special stamp duty, up from 15 percent, Tsang said. For resale between seven months and 12 months, the duty will increase to 15 percent, and transactions between 13 months to 36 months, the duty will be 10 percent.
"The current housing supply lags behind the soaring demand; we need to work on the demand-side measures," Tsang said. "These measures target specifically property investors who resell the flats within three years, but not the genuine end-users."
Prices of small to medium-size apartments have advanced 21 percent this year, raising concerns about affordability, he said.
The surge in property prices is out of sync with the economy where exports and retail sales have been declining, Tsang said.
"The low-interest rate environment will likely continue and Hong Kong property prices are likely to climb," he said. "The property bubble is likely to increase the risks" to the economy and people's livelihoods, he said.
Nonlocal buyers account for 19.5 percent of total sales of firsthand properties in Hong Kong in 2011 and 6.8 percent of total sales of secondhand properties in 2011, Tsang said.
Hong Kong joins Singapore in efforts to cool soaring property prices by targeting nonresidents. Singapore in December imposed an additional 10 percent stamp duty on foreigners and corporate entities.
The new measures won't apply to Hong Kong permanent residents, who according to the Basic Law of Hong Kong have right of abode in the special administrative region.
Hong Kong's central bank tightened mortgage lending on Sept. 14 after saying the Fed's latest quantitative easing risks pushing up home prices that have already surpassed their October 1997 peak. That marked the start of a 70 percent decline to August 2003, according to an index compiled by Centaline Property Agency Ltd. They have soared more than 240 percent since that trough nine years ago.
Leung said on Sept. 6 he will restrict homebuyers of two building sites the government plans to sell to local residents, a week after announcing a 10-point package to rein in prices including making more land available to developers and speeding up the building of public housing.
Hong Kong home prices have risen 18 percent this year, according to the Centaline index. They fell 4 percent in the last three months of 2011, the biggest quarterly drop since the global credit crisis, after mortgage restrictions and as China's economy began to slow.
Buyers from other parts of China made up 36.8 percent of all new sales by value in the first quarter, down from 37.9 percent in the previous three months, according to Midland Holdings Ltd. The proportion reached 53.9 percent in the third quarter last year, the realtor said.
The city's home prices are 65 percent higher than Tokyo's, the world's second-priciest place to buy a home, according to a study by Savills Plc published last September that compares prices in 10 global cities including New York and London.
The number of home transactions in Hong Kong rose 42 percent in August from a month earlier, the biggest increase since March.
Homes at The Reach in Hong Kong's Yuen Long district, jointly developed by Henderson Land Development Co. Ltd. and New World Development Co. Ltd., went on sale faster than planned last night immediately after the measures were announced at around 6 p.m., the South China Morning Post reported. Local and mainland buyers bought around 100 flats, the paper said, citing property agents.