ST : HK cracks down on property speculation

Nov 20, 2010

HK cracks down on property speculation

It imposes more curbs as IMF warns of the danger of asset inflation

HONG KONG: Hong Kong has imposed additional taxes and raised down payments on residential properties, stepping up a battle against surging prices after the International Monetary Fund warned that asset inflation may derail the Chinese city's economy.

Homes sold within six months of purchase will incur a 15 per cent stamp duty from today, Financial Secretary John Tsang said in a briefing yesterday. Down payments for homes costing HK$12 million (S$2 million) or more will rise to 50 per cent, from 40 per cent.

'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 Mr David Ng, a Hong Kong-based property analyst at Royal Bank of Scotland. '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 US Federal Reserve announced a plan to buy an additional US$600 billion (S$780 billion) in government debt to support the US economy.

Hong Kong is resorting to increased taxes and tighter lending to curb home prices that have risen more than 50 per cent since the beginning of last year because the city's currency peg to the US dollar prevents its de-facto central bank from raising interest rates.

'The unusual surge in flat prices has attracted speculators; this coupled with quantitative easing measures has distorted the market expectation regarding inflation and asset prices,' Mr Tsang said. 'The government is resolute in maintaining economic stability and curbing any threat to people's livelihoods.'

Properties resold within six months to 12 months will incur a 10 per cent stamp duty, while those resold from 12 months to 24 months will be charged 5 per cent, Mr Tsang said. 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 per cent from 30 per cent, Hong Kong Monetary Authority chief executive Norman Chan said at a separate briefing yesterday.

The maximum loan to value for all non-owner occupied residential properties and those held by companies will be lowered to 50 per cent, Mr Chan said.

The government will adopt more measures to make sure the market is stable, Mr Tsang said.

The additional stamp duty 'is quite substantial and is a way to deter speculation', said Mr Benedict Ma, Hong Kong- based associate director of research at CB Richard Ellis, 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.'

The IMF said in a report on Thursday that 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.

South Korea revived a tax on foreigners investing in its bonds yesterday; Thailand is ending foreigners' 15 per cent tax exemption on income from domestic bonds; Brazil has tripled a tax on purchases of local fixed-income assets by overseas investors.

And Bank of Taiwan, the unit of the island's biggest financial services company, has cut the amount of loans for buyers of luxury residential properties and second homes as the state-owned lender seeks to reduce credit risk.

BLOOMBERG