Hong Kong’s tax cuts seen as ‘band-aid solution’ for home market
HONG Kong’s property tax cuts are unlikely to reverse the city’s worst real estate slump in two decades.
That is the view of analysts at firms including Jones Lang LaSalle and MIB Securities Hong Kong, after Chief Executive John Lee unveiled the first easing of the levies since they were introduced about a decade ago.
The city is halving extra stamp duties targeting non-local buyers and residents who already own a home, Lee said in a policy address on Wednesday (Oct 25). Sellers are also now able to offload properties without paying tax after holding them for two years, down from three previously.
Lee’s move falls short of calls by developers and real estate agents to remove property levies to revive the market. In a city known for its expensive real estate, weakening demand and rising borrowing costs have driven existing-home prices down to a six-year low.
“The relaxation of cooling measures is only a band-aid solution that is unlikely to reverse the downward trend of home prices,” said Joseph Tsang, chairman of JLL Hong Kong. The agency expects home prices to drop 2 per cent to 3 per cent in the fourth quarter, driven by the economic downturn, geopolitical uncertainty in the Middle East, high interest rates and a stock market slump, Tsang added.
Shares of Hong Kong’s major developers erased gains after the announcement. Sun Hung Kai Properties fell 0.9 per cent as at 3.16 pm, after advancing as much as 4 per cent, while Henderson Land Development slid 1.5 per cent. Both stocks have dropped about 25 per cent this year.
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UBS Group expects home prices to fall by 10 per cent next year due to prolonged high rates and leverage risks among smaller developers. The removal of extra stamp duties on non-local buyers will not help the market in the long run, analysts including Mark Leung said before the steps were announced.
Under the changes, homebuyers on eligible talent visas are not required to pay extra duties unless they fail to become permanent residents. Foreigners will now pay 15 per cent levies on homes instead of 30 per cent, while the tax for Hong Kong residents buying a second property is reduced to 7.5 per cent from 15 per cent.
Any rebound is estimated to be short-lived, said MIB Securities Hong Kong analyst Sonija Li. “Buyers may choose to rent rather than buying a unit under a high interest-rate environment.”
A robust property industry is crucial for the financial health of Hong Kong, where land sales have long been a major source of income, giving room to sustain a low-tax system. The government reached only 18 per cent of its annual targeted land sale revenue of US$11 billion in the first six months of the fiscal year ended in March, according to Midland Realty.
Lee’s administration has already been rolling out measures to support the property sector. It lowered some home loan restrictions in recent months to make it easier for eligible buyers to get on the property ladder.
However, the policies have done little to fuel sales volume or values, and builders have resorted to deep discounts to offload inventory. There were 20,483 vacant new homes in the third quarter – the most in almost two decades, data from Centaline showed.
Major Hong Kong developers “might need to further cut prices to sell their new housing projects,” Bloomberg Intelligence analysts wrote.
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