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Hong Kong's Secretary for Financial Services, K C Chan, has said that the territory plans to retain tax policies to cool the local property market, but it is considering slightly relaxing conditions for non-resident buyers. He made his comments before Hong Kong's Legislative Council, which is considering legislation to increase rates of ad valorem stamp duty.
Despite the increased Special Stamp Duty (SSD) rate and the introduction in of a Buyer's Stamp Duty (BSD) on residential properties purchased by those who are not Hong Kong permanent residents (HKPRs) in 2012, Chan said the Government felt, in early 2013, that further measures were still necessary to cool down the residential property market.
Therefore, with effect from February 23, 2013, the Government increased the cost of property transactions generally by doubling across the board the rates of existing AVD applicable to both residential and non-residential properties. For transactions valued HKD2m (USD258,000) or below, the stamp duty increased from HKD100 to 1.5 percent of the consideration of the transaction.
Exemptions have been granted similar to those available in the existing SSD and BSD regimes. The new AVD rates will not apply to HKPR buyers who are not beneficial owners of any other residential property in Hong Kong at the time of acquisition of a residential property.
In addition to the need to cooling down the overheated property market immediately, Chan confirmed that the measures were also formulated to be "consistent with the Government's policy directive, i.e. to accord priority to the home ownership needs of HKPRs, and take a stringent approach in drawing up exemption rules to ensure the effectiveness of the measures."
In particular, he could not agree with subsequent proposals that a similar exemption arrangement should be available for non-residential property transactions. "The policy considerations for non-residential properties are not on a par with addressing the home ownership needs of HKPRs," he added.
As a technical adjustment, however, the Government is proposing a relaxation of the six-month timeframe for those HKPRs who have acquired a new residential property before disposing of their original one.
The current bill proposes that if the HKPR who acquires a new residential property has entered into an agreement for sale to dispose of his or her original and only other residential property in Hong Kong within six months from the date of acquiring the new property, he or she can benefit from an AVD refund mechanism. The new adjustment would now run from the conveyance on sale, instead of the agreement for sale and purchase of the newly acquired property.
Finally, Chan confirmed that the Government could not agree to include a proposed sunset clause in the legislation. Since the introduction of the doubled AVD measures, he said, the property market has shown signs of cooling down with dwindled transactions and stabilized prices. However, "as the Government has pointed out repeatedly, we cannot predict future market changes and various external factors and come up with a date as to when the demand-side management measures would no longer be applicable. Therefore, any prescribed sunset clause will only disseminate erroneous messages to the market and fuel demand, thus affecting the effectiveness of the measures," he said.
He pointed out that "the Government will continue to monitor closely the property market and changes in the external factors, take appropriate measures, including making timely adjustment to the measures with a view to safeguarding the healthy and stable development of the property market. Thus, I undertake that the Government will conduct a review and report to the Legislative Council one year after the enactment of the legislation."A comprehensive report in our Intelligence Report series dealing with the issues raised by international property investment, and the possible taxation implications raised by such purchases, with an account of the likely (and some less obvious) potential countries for your consideration, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report15.asp
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