HK taxes foreign property buyers to cool market

Published on Oct 27, 2012

HONG KONG - The government has announced new taxes on home sales and targeted foreign buyers, stepping up efforts to cool prices as United States monetary easing and record-low interest rates raise the risk of an asset bubble.

Foreign, or non-resident, buyers will have to pay a 15 per cent tax upon purchase, Financial Secretary John Tsang told reporters at a press conference yesterday.

The government will also raise stamp duty on short-term property transactions to dampen speculation, the first time it has taken such direct measures to curb what many see as excessive overseas buying, particularly by mainland Chinese buyers, driving the market beyond record 1997 levels.

"The current housing supply lags behind the soaring demand; we need to work on the demand-side measures," Mr Tsang said.

"These measures target specifically property investors who resell the flats within three years, but not the genuine end-users."

The measures are the third set of curbs in two months to rein in home prices that have almost doubled since early 2009.

Prices have risen about 20per cent in the first nine months of this year.

Mr Tsang said these were extraordinary measures at an exceptional time.

"The risk of a property bubble forming has increased greatly. It may be a threat for the Hong Kong macro-economy and the stability of the financial system," he told reporters.

Under the new measures, a so-called buyer's stamp duty of 15per cent would be imposed on non-Hong Kong permanent resident buyers and companies.

The government will also raise a resale tax on property by about 5 percentage points and extend the period during which it will apply from two years to three. The tax will rise to 20 per cent for those selling within six months, to 15 per cent for resale within a year, and 10per cent for resale within 12 to 36 months. The measures take effect today.

Foreign buyers accounted for 19.5per cent of new home sales last year, up from 5.7per cent in 2008; and 6.5per cent of all home sales last year, compared with 3.1 per cent in 2008.

Previous initiatives by the government seem to have failed to halt the rise, with analysts saying expectations had prevailed that the market would likely continue to rise given a flood of hot money from the US' latest round of quantitative easing, low interest rates and high demand from mainland Chinese.

Hong Kong banks were last month ordered to curb home loans to borrowers with more than one mortgage, to prevent the city from being flooded with hot money after the US announced an aggressive new stimulus plan to spur growth.