Hong Kong Citizens Put The Brakes On House Purchases

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

06 January 2006

Newly-released statistics from the Hong Kong Land Registry have revealed that December was the worst month for home sales in the territory since the outbreak of severe acute respiratory syndrome (SARS) in the first half of 2003.

The total number of sale and purchase agreements for all types of building units received for registration in the Land Registry in December 2005 was 5,456. This was a decrease of 32.3% from November, 2005, and 48.1% compared with December, 2004.

Of these sale and purchase agreements, 4,426 were for residential units - the lowest monthly figure since May 2003, during the SARS epidemic which severely dented Hong Kong's economic confidence. While the territory's economy has rebounded strongly in the last two years, analysts are blaming the slowdown in home sales on rising interest rate levels.

Nonetheless, according to the real estate agency Centaline China, Hong Kong citizens have also put the brakes on purchases in mainland China during 2005; the number of transactions undertaken by them in the mainland market fell by 8% to 17,800.

However, this statistic may be evidence that measures put in place by the Chinese authorities to cool the housing market in certain hot spots are beginning to succeed.

Last May, the Chinese government attempted to head off a real estate bubble by raising home-loan interest rates, limiting urban demolition and levying taxes on housing sales.

The government is concerned that housing prices are steadily moving beyond the reach of ordinary citizens, particularly in growth centres markets like Shanghai, where prices have jumped nearly 70% in the past two years. Apartments downtown sell for more than $300,000 - far beyond the reach of the average citizen. Shanghai this year imposed a 5.5% capital gains tax on properties sold more than once in a year.

China will also launch a new attempt this year to control soaring house prices and the shortage of affordable housing by fine-tuning its development planning and tax policies.

Construction Minister Wang Guangtao said last week that the new policies would be designed to restrict land available for high-end developments while encouraging medium to low-priced projects.

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