HK Anti-Speculation Measures 'Working' Says Chan

by Mary Swire, Tax-News.com, Hong Kong

13 December 2010

The Hong Kong government has announced that recent measures to dampen "exuberance" in the territory's property market, including a special stamp duty, are working.

Acting Financial Secretary Prof KC Chan told lawmakers on December 8 that as the Special Stamp Duty is applicable to all residential units regardless of size or value, there should not be capital switching from the luxury market to the mass market. Nevertheless, he said that the government will continue to monitor the market situation "closely" and introduce "appropriate measures without hesitation when necessary.”

The Stamp Duty (Amendment) (No.2) Bill 2010 will introduce the Special Stamp Duty on residential property transactions of all values acquired from November 20, 2010 and resold within two years, in addition to the current ad valorem stamp duty.

The Special Stamp Duty payable will be based on different holding periods - 15% for property held for six months or less; 10% for more than six months but one year or less; and 5% for more than one year but less than two years.

Noting the second round of quantitative easing in the US may spur capital inflows into Hong Kong and increase volatilities in the local stock and property markets, he said it is difficult to predict the timing and impact of a reversal in capital flows because the external environment is fraught with uncertainties, so it is difficult to predict the timing and impact of a reversal in capital flows.

Financial institutions in Hong Kong are being encouraged by the government to remain "prudent" in extending loans, thus preventing credit expansion and asset price inflation forming a "vicious circle," helping to reduce shock in the event that capital retreats.

“On the policy front, the most important things are to ensure the sound fundamentals of the economy and the stability of the financial systems, to avoid over-consumption or over-borrowing at times of ample liquidity, and to forestall an overheating economy and the building up of systemic risks," Chan said.

“We will continue to monitor the situation and respond as necessary to changes in the environment. While the government will do its part thoroughly, it is equally important for the community, including small investors, to adopt prudent risk management and avoid over-leveraging or speculation, so as to avoid losses in case of a sudden reversal of the markets in the future," he added.

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