Hong Kong scraps property curbs to boost weak housing market
HONG Kong is removing cooling measures to boost the lacklustre residential market and provide additional funds to boost tourism as part of a sweeping plan to revive growth in the ailing financial hub.
Measures to curb housing demand will be cancelled with immediate effect, Financial Secretary Paul Chan said in his Budget speech on Wednesday (Feb 28).
The policies are no longer necessary in the current economic and market conditions, he said during an address that also detailed some HK$1 billion (S$171.9 million) spending on tourism measures including fireworks displays and efforts to host more mega events.
In addition, the Hong Kong Monetary Authority (HKMA) eased mortgage rules, pausing stress tests and allowing some homebuyers to purchase properties with smaller down payments.
Separately, the government announced plans to raise taxes on high earners in a bid to bring down the budget deficit.
Confidence in Hong Kong has waned as home prices tumbled to a seven-year low, national security measures eroded freedoms of expression and the stock market sank at one of the fastest rates worldwide. High interest rates and China’s growth slowdown have also weighed on the city’s recovery from the pandemic slump.
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The Hang Seng Properties Index reversed losses on news of the property cooling measures, climbing 2.6 per cent. New World Development jumped more than 8 per cent, headed for its best day in more than two months and the biggest gainer on the Hang Seng Index. Henderson Land Development advanced 7.7 per cent.
Property easing
HKMA said that it would suspend a stress test for residential mortgages that required borrowers to attain a certain level of income to cover a potential rise in interest rates.
In addition, it allowed buyers to borrow more to purchase more expensive homes. For example, the maximum loan-to-value ratio for properties worth as much as HK$30 million was changed to 70 per cent. Previously, only homes valued up to HK$15 million were eligible for a 70 per cent LTV ratio.
Until now, non-residents had to pay a combined 15 per cent tax when purchasing properties, while Hong Kong resident buyers who already own a home were subject to a 7.5 per cent levy.
Owners who sold their properties within two years of purchase had to pay extra duties. In comparison, the rate for regular home purchases is capped at 4.25 per cent.
The real estate industry had urged Chan to lift the curbs to boost sales and alleviate the worst property slump in more than two decades. High borrowing costs and a weak economic outlook have deterred buyers.
“Abolishing the extra stamp duties for investors and overseas buyers could breathe new life into Hong Kong home sales,” said Bloomberg Intelligence analyst Patrick Wong.
Still, the impact of the tax cuts is likely to be muted if previous easing measures are any guide.
After the government lowered the additional stamp duty on non-local buyers and investors last October, there was only a moderate rise in sales. There was just an increase of 16 home sales tied to such tax between November and January, said JLL.
The “surprise announcement” will favour property firms and travel-related shares, according to Sonija Li, an analyst at MIB Securities Hong Kong. She said that HKMA “may further relax mortgage rules” related to stress testing and mortgage loans.
Any pickup in the housing market would improve Hong Kong’s prospects to generate revenue from land sales, easing pressure on the city’s strained finances. The government decided not to sell any residential or commercial land plots in the first quarter due to weak demand from developers.
A two-tier tax system will be introduced from April, with income of up to HK$5 million taxed at 15 per cent, and anything higher than that being taxed at 16 per cent. The move will affect about 12,000 people, or about 0.6 per cent of taxpayers. This will bring in about HK$910 million of additional revenue each year, Chan said.
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