Hong Kong’s government has scrapped all stamp duties on housing transactions
Hong Kong is rolling back all taxes on residential property transactions in an effort to put a floor under a protracted housing market slump that has seen residential property prices slide to seven-year lows.
In his annual budget speech to Hong Kong’s legislature on Wednesday, financial secretary Paul Chan Mo-po said the government will scrap three types of stamp duties on home sales with immediate effect, reversing a series of market cooling measures put in place starting from 2010 which aimed to curb housing speculation in the Asian financial centre.
“After prudent consideration of the overall current situation, we decide to cancel all demand-side management measures for residential properties with immediate effect,” Chan said in his speech. “That is, no Special Stamp Duty (SSD), Buyer’s Stamp Duty (BSD) or New Residential Stamp Duty (NRSD) needs to be paid for any residential property transactions starting from today. We consider that the relevant measures are no longer necessary amidst the current economic and market conditions.”
The policy move comes as Hong Kong home prices fell to a seven-year low in January, down 23 percent from their 2021 peak, according to data from Hong Kong’s Rating and Valuation Department, as high interest rates and a sluggish economic recovery dented home prices in a city that had regularly ranked as the world’s least affordable housing market.
Restrictions Removed
The canceled taxes include buyer’s stamp duty imposed on non-permanent resident purchasers and the new residential stamp duty levied on second home purchasers, as well as the special stamp duty which collected 10 to 20 percent of deal value if homeowners sold their properties within two years.
Hong Kong financial secretary Paul Chan (Getty Images)
In October, Hong Kong had already halved the BSD and NSRD from 15 percent to 7.5 percent and shortened the SSD window from three years to two years in a bid to boost the market, but that move failed to stop the housing slide.
In a parallel move on Wednesday the Hong Kong Monetary Authority (HKMA) relaxed down payment requirements on home purchases, with the maximum loan-to-value (LTV) ratio for homes valued at HK$30 million or below raised to 70 percent from 60 percent, while the threshold for properties valued at HK$35 million or above will be increased to 60 percent from 50 percent. For non-self-use residential properties, the maximum LTV ratio was adjusted to 60 percent from 50 percent.
Non-residential properties, including offices, retail shops and industrial buildings, will see their maximum loan thresholds raised to 70 percent from 60 percent, while the overall financing cap for development projects will be increased to 60 percent of the expected value of the completed property from 50 percent, according to the HKMA.
Hong Kong’s de facto central bank also suspended a stress test for residential mortgages that required borrowers to attain a certain level of income to cover a potential increase in interest rates.
Macro Headwinds Remain
Removal of the restrictive measures was seen by some analysts as potentially boosting property transactions and generating momentum for the market.
“Abolishing the extra stamp duties for investors and overseas buyers could breathe new life into Hong Kong home sales, including at leading developers Sun Hung Kai, CK Asset and Henderson Land, which plan to bring new residential projects to market in March,” said Patrick Wong, senior real estate analyst at Bloomberg Intelligence. “Annual new home transactions could leap as much as 50 percent this year, recapturing the 10 year average of 16,000 units.”
However, property consultancies, including JLL, cautioned that any recovery would be gradual as high borrowing rates remain a hurdle for buyers.
“(I) expect home sales to increase significantly by 10 percent to 15 percent in 2024, and the downward trend in property prices will slow down, which will help the market stabilise,” said Joseph Tsang, chairman of JLL in Hong Kong. “However, the negative factors such as high interest rates and a weak economy still exist and simply withdrawing the measures is not enough to reverse the downward trend.”
Tsang predicts that housing prices will still fall 10 percent this year, and said only after interest rates come down and the broader economy improves will values start to recover.
Hong Kong’s equities market reflected the cautious response, with shares of Hong Kong’s major developers falling later in the day after rising during Chan’s speech. Shares of Sun Hung Kai Properties, Henderson Land and New World Development closed up 0.7 percent, 3.8 percent and 2.9 percent respectively, while CK Asset ended the day flat.
Chan said he expects Hong Kong’s GDP to grow between 2.5 percent to 3.5 percent in 2024 “amid a complicated and ever-changing international environment” and projected an average GDP growth rate of 3.2 percent from 2025 through 2028, matching the city’s 2023 economic growth rate.