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Thread: HK acts again to prick its property bubble

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    Default HK acts again to prick its property bubble

    http://www.businesstimes.com.sg/sub/...74096,00.html?

    Published February 25, 2010

    HK acts again to prick its property bubble

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

    By CONRAD TAN


    (SINGAPORE) 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.

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    http://www.straitstimes.com/PrimeNew...ry_494652.html

    Feb 25, 2010

    HK acts to avert property bubble

    Taxes on luxury-home purchases go up, supply of apartments to rise


    HONG KONG: Hong Kong will increase taxes on luxury-home purchases for the first time in more than a decade and boost the supply of apartments as a surge in prices last year fuels concerns that the market may be overheating.

    Stamp duty on homes selling for more than HK$20 million (S$3.6 million) will rise to 4.25 per cent from 3.75 per cent beginning in April, Financial Secretary John Tsang said in his annual budget speech yesterday.

    Buyers of these flats would no longer be allowed to defer payment of stamp duty. The measure could be extended if excessive speculation was detected in the trading of less expensive properties, he said.

    The government will also put more residential sites up for auction, he added.

    Mr Tsang warned that a recent property frenzy, driven by a huge inflow of more than HK$640 billion since late 2008, could threaten economic stability.

    '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.'

    Overall housing prices in Hong Kong rose above 30 per cent last year due to demand from wealthy mainland Chinese, tight land supply and loose monetary policy.

    Mr Tsang said the government would strive to increase residential land supply, with plans to auction several urban residential sites in the next two years if market conditions allow.

    He also pledged to prevent excessive expansion in mortgage lending.

    Prices of some luxury flats returned to the peaks of the 1997 property boom last month, he said.

    But some analysts said the moves unveiled by Mr Tsang would have limited effect.

    'It doesn't help to cool the property prices. It can't because most of the luxury property buyers come from China. They will not care about a 4.25 per cent or even 5 per cent tax,' said Mr Castor Pang, head of research at Cinda International.

    'They think property investments in Hong Kong are quite safe,' he added.

    Mr Wong Leung-sing, head of research at Centaline Property Agency, said a bubble would still be created with Hong Kong's interest rates remaining low due to its currency peg to the US dollar.

    He said: 'The economic boom in China and low interest rates in the United States are two major external factors that together will almost guarantee a property bubble in the next few years.'

    Share prices of property firms rose after the budget speech as stock investors were relieved that the measures were much weaker than expected.

    Ms Nicole Wong, a Hong Kong-based real estate analyst at CLSA Asia-Pacific Markets, said the stamp-duty increase was 'lip service' as the measure will affect only about 2 per cent of the property market.

    Stimulus measures by governments around the world have boosted liquidity, which has led to large fund inflows into Asia, driving asset prices higher, Mr Tsang said.

    Land sales and stamp duties were the major contributors to the government's surprise surplus of HK$13.8 billion for the 2009-2010 financial year, he added.

    The government is 'cautiously optimistic' about Hong Kong's economy this year and expects it to grow by 4 per cent to 5 per cent.

    The city emerged from its latest recession in the second quarter of 2009, when its gross domestic product rose 3.5 per cent on a quarterly basis after four consecutive quarters of contraction.

    AGENCE FRANCE-PRESSE, BLOOMBERG, REUTERS

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