Anticipation of the property market and the Government’s measures in Hong Kong

The prosperity of property transactions and the rapid rising of property values in Hong Kong has been the hottest topic for discussion in recent months. The growth is somehow incredible but could be first hinted from late 2009.

 
The global economy has entered a dark spell since mid of 2007 when the subprime mortgage crisis in the United States and the global economic downturn burst out and tumbled by subsequent debts restructurings of multinational conglomerates. Whereas the global market recovered gradually after mid of 2009, the investors might have hesitation to invest in or be observing the stock market and, the property market then provided an ideal alternative for their funds to locate.

According to market analysts, the rapid growth of the property market in Hong Kong is and will continue to be enhanced by certain favorable factors: (1) lack of land supply and the hunger for new residential properties in Hong Kong during the last two years; (2) low market prime rate, and; (3) surplus of available capital funds in the market. The situation is further enhanced by the rapid appreciation of Renminbi and the loosen restrictions on PRC citizens to invest in Hong Kong properties in recent years. Further to the announcement by the United States Federal Reserve on November 3, 2010 on the launching of the second round of “Quantitative Easing” (“QE2”) amounting to USD600 billions, more funds are expected to flow to the emerging markets, in particular Hong Kong, given the strong economic fundamentals and absence of capital control here. Our government is already taking serious consideration on the risks of a property bubble effect for the years to come…

As from the latest figures published by government statements, there has been an influential increase of 32% on the number of “properties re-sales within 24 months” in the first three quarters of 2010, as compared with the same period in 2009. This indicates the trend of increasing speculative activities and the shift to a shorter horizon.

Taking into account of the above, the Government of the Hong Kong Special Administration Region has introduced in 2010, certain measures aiming to curb speculative activities in residential properties:

(a)   The Inland Revenue Department (“IRD”) has closely followed up a total of approximately 4,300 suspected property speculation cases in 2008-2009 involving speculators profiting from property speculation.

(b)   The Government has increased the rate of stamp duty on transactions of properties valued at more than HK$20 millions to 4.25% since April 1, 2010. The act aims to tackle property speculation on luxury residential units and serves as the foundation of the latest Special Stamp Duty (“SSD”).

(c)   The Government introduced on November 19, 2010, on top of the current ad valorem property transaction stamp duty, the SSD on disposal of residential properties of all values acquired on or after November 20, 2010, either by an individual or a company (regardless of where it is incorporated), and resold within 24 months after acquisition. SSD will be levied at regressive rates ranking from 5% to 15% for different holding periods shorter than 24 months. The implementation of this new measure is subject to the enactment of the proposed legislative amendments, and will be back dated upon approval.

The government’s measures, especially the SSD, would probably pose alerts and discouraging effects to the already over-heated speculation transactions in the property market.