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HK acts again to prick its property bubble

Posted on 25 Feb 2010 | Comments Off

Stamp duty on luxury property sales raised in Budget; supply of flats to increase

Mr Tsang: Warned that the govt may also raise the transaction tax on properties valued at under HK$20m, ‘if there is excessive speculation’ in their trading

Hong Kong’s government yesterday raised the stamp duty on luxury property sales and warned that more such measures could follow – the clearest sign yet that officials there fear the consequences of a bubble forming, and then bursting, in the territory’s private- home market.

The transaction tax on properties worth more than HK$20 million (S$3.63 million) will be increased to 4.25 per cent on April 1, from 3.75 per cent now, Financial Secretary John Tsang said in his Budget speech yesterday. In addition, buyers will no longer be allowed to defer payment of stamp duty on such transactions.

The government may also raise the transaction tax on properties valued at HK$20 million or less, ‘if there is excessive speculation in the trading of these properties’, Mr Tsang warned.

An inflow of over HK$640 billion of funds into Hong Kong since the fourth quarter of 2008 has increased the risk of creating asset-price bubbles, he said. ‘We are also concerned that if capital flows were to reverse or interest rates rebound, asset prices would become more volatile. This in turn may affect the stability of our financial system and the recovery of the real economy.’

The large inflow of capital has also pushed up the prices of luxury flats, as well as smaller apartments, he said. Overall, property prices are 8 per cent above their peaks before the recent financial crisis; some luxury-flat prices have even returned to their peaks reached during the 1997 property boom, he added.

The rise in property prices has picked up again after slowing slightly in the fourth quarter of last year, and turnover has also increased, Mr Tsang said. He added that he was ‘particularly concerned’ that some people would be unable to meet their mortgage payments if interest rates rise from their current, unusually low, levels.

The government will also work to increase the supply of affordable flats, and will put up several urban residential land sites for sale by auction or tender in the next two years, if the sites have not been triggered by an application by a private developer, Mr Tsang said.

‘The measures are quite similar to those introduced recently by Singapore to rein in excessive exuberance in the residential property market,’ said Leonard Ong, executive director at KPMG Tax Services here. ‘The Hong Kong government is clearly concerned with the risk of a property bubble forming.’

Tracy Ho, tax partner at Ernst & Young in Hong Kong, said that the moves to cool the property market were not surprising, given the sky-high prices seen in a number of property transactions in recent months. ‘I wouldn’t call it unbelievable, but you wouldn’t think some of this would happen after the financial tsunami.’

The aim of raising the stamp duty ‘is really to increase the transaction costs for speculators, to cut down the speculative atmosphere’, she added.

Last October, the Hong Kong Monetary Authority reduced the loan-to-value limit on housing loans for properties worth HK$20 million or more to 60 per cent, from 70 per cent, and capped the maximum loan amount for cheaper properties at HK$12 million.

In Singapore, the government also introduced various measures late last year to curb speculation in the property market.

Last Friday, it announced a seller’s stamp duty to be levied on those who buy a residential property and sell it within a year, and lowered the loan-to-value limit on housing loans to 80 per cent, from 90 per cent.

Yesterday, Mr Tsang said he expects the Hong Kong economy to expand 4-5 per cent this year, after shrinking 2.7 per cent last year.

He also introduced several proposals to promote a ‘green economy’, including a HK$300 million fund to spur the transport industry to test energy-saving and low-carbon-emission transport technologies; a HK$540 million subsidy scheme to encourage the replacement of older, more polluting diesel commercial vehicles; and tax incentives to promote the use of environment-friendly commercial vehicles.

Source : Business Times – 25 Feb 2010

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Posted in Overseas Property

Tagged Hong Kong Property, Hong Kong Property Market

High luxury-home prices are good

Posted on 14 Nov 2009 | Comments Off

I WORK in the real estate sector in Hong Kong but do not cover the residential property market. Nevertheless, like many residents of the Special Administrative Region, I have been fascinated by recent market developments. Over the past few months, prices have been rising, China buyers have been increasingly active, developers have been launching units and analysts have been talking about the lack of supply. Debate raged over the sustainability of price rises with the argument centring on lingering economic weakness versus abundant liquidity coupled with early signs of economic improvement.

News then broke in late October of Henderson Land’s sale of a duplex at 39 Conduit Road for HK$439 million (S$78.54 million) or a world record HK$71,280 per square foot. What has since ensued is heated discussion over whether dreams of home ownership for the middle class in Hong Kong have been shattered in part due to rich China buyers driving up prices. Calls are being made for the government to tame the raging animal spirits in the Hong Kong residential market.

The themes playing out in the Hong Kong market are to some extent applicable to Singapore, although the Singapore private residential market rally this time round has been mass-market-led while that in Hong Kong is driven by the high end. Still, with Singapore’s imminent opening of the integrated resorts, there could be a new spring in step for high-end properties.

In Hong Kong, questions being discussed include: Are foreigners pricing out locals? Do sky high prices for luxury units matter? What can and should government do to control property prices? What help if any should government render middle-class locals in owning their homes? Are the controversies in the property market a reflection of economic growth in recent years benefiting high-income earners disproportionately while the rest lag behind?

Invariably, there will be some degree of envy when wealthy foreigners come to any city and lord it over the locals. Such a scenario emerges in many a successful city, with rich Russians and Arabs in London, rich China nationals in Hong Kong and rich Indonesians in Singapore. However, should one follow the head rather than the heart, it is not just the Hong Kong property tycoons who ought to celebrate the sale of a luxury unit for HK$71,280 psf but everyone.

Wealthy people have a choice of where to invest their money. Hong Kong people should be proud that there are a fair number of rich people confident enough in Hong Kong’s prospects to pay princely sums for property in the territory. Indeed, having millions poured into residential property helps generate real-estate-related jobs plus spending by the dwellers of luxury properties. Real estate investment may not generate the same amount of economic spin-offs as investment into manufacturing but they still bring economic benefits.

Singapore and Hong Kong share many similarities, key of which is that both cities, in my view, have a bright future catering to a rapidly growing Asia as hubs of finance, trade, transport, tourism, and various other services. Economic success of both cities does depend on keeping an open door to foreigners and this includes being broadly welcoming to participation by foreigners in the property market. Hong Kong has an important strategic fight on its hands of being competitively positioned as Shanghai and Beijing make strides up the league of global cities. The people of Hong Kong should be more concerned with the city’s ability to thrive in an ever-changing global landscape than the state of the property market. Of course, should Hong Kong continue to grow as a key business hub, expect more reports of developers selling luxury units for mind-boggling sums.

Shelter is a basic need of man and owning a home is a key purchase decision for many people. Defining the type of housing that the middle class should be able to afford is, however, tricky. I believe that all policymakers can largely do is to ensure that there is adequate land supply such that there is a range of property types at different price points available. Just as with any consumer product, we should rely on developers to offer choice to meet a variety of needs.

It is not surprising that developments in the residential property market generate strong emotions. Very high prices at luxury projects are not mere aberrations and high prices at the high end can lead the rest of the market up. Nonetheless, the high end typically forms a small part of the wider market and purchasers at the high end tend to be financially strong, Thus, it would be wrong to see high luxury-unit prices as indicative of a property bubble, which is what policymakers rightly fret about. Instead, what policymakers could do is to be more effective in winning hearts and minds – that high prices at the high end are generally a good thing.

More critically, what policymakers in successful Asian cities can focus on is to put any discussion of residential real estate in a wider context. While anxieties of the middle class with regards to home ownership may be difficult to assuage, the state can focus on doing more in other areas to alleviate life’s anxieties such as providing low-cost quality education, healthcare coverage and help with retirement savings. Let the pursuit of making a city a great place to work, live and play go together with ensuring that a range of needs of local residents are well taken care of. While not everyone can live in a prime neighbourhood, everyone can perhaps get reasonably good health care and education.

The writer is a Hong Kong-based real estate executive with extensive experience in the Singapore property market

Source : Business Times – 12 Nov 2009