Government claims tougher curbs will cool property market

Wants to prevent massive property bubble from overheating when interest rates eventually rise.

The government insists its stricter property measures instituted late last week will prove effective in cooling an overheated and out of control property market.

Secretary for Financial Services & the Treasury Prof KC Chan said the two new measures are intended to increase the transaction cost for all properties.

The government said the ad valorem stamp duties on both residential and non-residential properties would be doubled across the board, while stamp duty for transactions of $2 million or below will rise from a $100 flat fee to 1.5% of the transaction's consideration.

The new stamp duty rates will not apply to first-time residential property buyers who are Hong Kong permanent residents.

“We shall grant exemptions similar to those available in the existing Special Stamp Duty and Buyer’s Stamp Duty regimes,” said Financial Secretary John Tsang in announcing the new regulations last week.

“The new stamp duty rates will not apply to Hong Kong Permanent Resident buyers who are not beneficial owners of any other residential property in Hong Kong at the time of acquisition of a residential property,” he said.

Under a new arrangement, Tsang said stamp duty on a non-residential property will be charged on a sale and purchase agreement, instead of the current practice of charging it when a conveyance on sale of the property is executed.

Chan said the Buyer's Stamp Duty and the enhanced Special Stamp Duty introduced last year achieved their purpose, driving down non-Hong Kong permanent residents' demand.

He noted that in some housing segments, transactions have gone down and prices have been moderated. However, he said the government realizes that prices in certain market segments, particularly in the medium-priced segment, have continued to rise.

“So it is time for us to do more. We actually increase the transaction cost for all properties in an appropriate way, which is to increase the rate but giving exemption to first-time buyers who do not have a property under their name concurrently. This is a way for us to address the exuberance and try to reduce the demand in the market,” he said.

Secretary for Transport & Housing Prof Anthony Cheung later said that government is concerned about the property market bubble, as risk will increase when interest rates eventually rise. Individuals have to be very cautious about their decision to buy, he added.

“Through the increase in the ad valorem stamp duty rates, we want to increase the cost of transaction so that they will do their own 'stress test' in order to make a wise decision,” he said.