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Hong Kong Increases Tax on Property Resold Within Two Years to Cool Market

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  • Hong Kong Increases Tax on Property Resold Within Two Years to Cool Market

    Hong Kong Increases Tax on Property Resold Within Two Years to Cool Market

    By Kelvin Wong and Sophie Leung - Nov 19, 2010
    Hong Kong intensified a yearlong battle to curb surging home prices with additional taxes and higher down payments a day after the International Monetary Fund warned that asset inflation may derail the city’s economy.
    Homes sold within six months of purchase will incur a 15 percent stamp duty from today, Financial Secretary John Tsang said in a briefing yesterday. Down payments for homes costing HK$12 million ($1.5 million) or more will rise to 50 percent, from 40 percent. A stock gauge of developers in Hong Kong fell for the eighth day in nine ahead of the announcements.
    “The measures show the government is serious about curbing speculation, and that would impact on market sentiment, leading to a fall in home sales volume,” said David Ng, a Hong Kong- based property analyst at Royal Bank of Scotland Plc. “Home prices won’t see a decline immediately as speculators could still keep their stocks in the low interest rate environment.”
    Governments from South Korea to Brazil are acting to stem fund inflows into their higher-yielding markets after the U.S. Federal Reserve’s expanded monetary stimulus. Hong Kong is resorting to increased taxes and tighter lending to curb home prices that have risen more than 50 percent since the beginning of 2009 because the island’s currency peg to the dollar prevents the city’s de-facto central bank from raising interest rates.
    Curbing Threats
    “The unusual surge in flat prices has attracted speculators; this coupled with quantitative easing measures have distorted the market expectation regarding inflation and asset prices,” Tsang said. “The government is resolute in maintaining economic stability and curbing any threat to people’s livelihoods.”
    The Hang Seng Property Index, which tracks the city’s seven-biggest builders, fell 1.3 percent yesterday to the lowest since Oct. 29. It has declined 7.6 percent since this year’s peak on Nov. 8. It ended the week 4.1 percent lower, its biggest weekly drop since the five days ended May 7.
    Properties resold within 6 months to 12 months will incur a 10 percent stamp duty, while those resold from 12 months to 24 months will be charged 5 percent, Tsang said yesterday. The stamp duty will be split between buyers and sellers, he said.
    Down payments for homes costing between HK$8 million and HK$12 million will be increased to 40 percent from 30 percent, Hong Kong Monetary Authority Chief Executive Norman Chan said at a separate briefing yesterday. Chan has said the Fed’s quantitative easing may spur inflows of cash into Hong Kong.
    More Curbs
    The maximum loan to value for all non-owner occupied residential properties and those held by companies will be lowered to 50 percent, Chan said.
    The government will adopt more measures to make sure the market is stable, Tsang said.
    The additional stamp duty “is quite substantial and is a way to deter speculation,” said Benedict Ma, Hong Kong-based associate director of research at CB Richard Ellis Group Inc., the world’s biggest real-estate services firm. “Investors, especially those in the luxury market, will have to reassess whether this is really the right time to get into the market.”
    Hong Kong Mortgage Corp., a government-backed home-loan insurer, will introduce a cap of HK$6.8 million on the value of properties it will cover, it said in a statement.
    The IMF said in a report this week Hong Kong’s accelerating asset inflation risks causing a bust that leads to deflation and an extended economic “downturn,” and urged further measures to rein in prices. The city has in the past year raised down- payment ratios and boosted land supply to curb home prices, which have surpassed a 1997 peak on the back of record-low mortgage rates and an influx of mainland Chinese buyers.
    Hong Kong Measures
    In April, Hong Kong raised the tax on homes selling for more than HK$20 million to 4.25 percent from 3.75 percent.
    The government announced Aug. 13 it’s tightening mortgage lending rules on luxury and investment properties and increasing land supply to curb home prices. Down payments for apartments costing HK$12 million or more and for investment properties were raised to 40 percent, from 30 percent.
    Home prices have since risen 5 percent, according to Centaline Property Agency Ltd., the city’s biggest privately held real-estate brokerage.
    Chief Executive Donald Tsang said in his Oct. 13 policy address the government will stop offering residency to foreigners who buy property in the city and increased land auctions to boost supply.
    Hong Kong is in “the same boat” as other Asian economies as inflows of money put upward pressure on property and consumer prices, Chan said in comments on the HKMA website on Nov. 4. The Fed has announced a plan to buy an additional $600 billion in government debt to support the economy, a policy Fed Chairman Ben S. Bernanke said in prepared remarks to a conference yesterday in Frankfurt would ultimately support emerging markets as growth revives in developed economies.
    Asia Efforts
    South Korea revived a tax on foreigners investing in its bonds this week, Thailand is ending foreigners’ 15 percent tax exemption on income from domestic bonds, while Brazil tripled a tax on purchases of local fixed-income assets by overseas investors.
    Bank of Taiwan, the unit of the island’s biggest financial services company, yesterday cut the amount of loans for buyers of luxury residential properties and second homes as the state- owned lender seeks to reduce credit risk.
    Hong Kong in October 2009 tightened down-payment requirements for luxury homes, which meant buyers of homes costing HK$20 million or more could borrow as much as 60 percent of a property’s value, down from 70 percent. In the same month, Hong Kong Mortgage Corp. limited home loan insurance to homes of no more than HK$12 million and suspended insurance for homes that aren’t owner occupied.
    The government also is cracking down on developers’ marketing tactics it has described as deceptive. It plans to restrict common features, including clubhouses, developers claim as part of apartments to 10 percent of gross floor area from April 2011.

    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx