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HK Raises Property Tax

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

23 November 2010


Following a significant inflow of hot money, leading to substantial increases in asset prices in Hong Kong, the Financial Secretary, Mr John C Tsang, has announced new anti-property speculation measures.

He said that, with Hong Kong’s local property prices some 15% above the level of only eight months ago, and a “staggering” 47% above their low levels of 2008, the government had to take action, especially as the United States’ recent USD600bn addition to its quantitative easing programme was likely to lead to a further inflow of capital into Asia.

He disclosed that “property transactions in the first ten months of this year increased by 17% compared with the same period last year. The rate of increase in the number of transactions in small and medium sized units is even greater than those in the luxury market. This suggests that the exuberance has begun to spread to the mass market.”

Furthermore, “short-term resale transactions are increasing rapidly,” he added. “In the first nine months of this year, the number of re-sales within 12 months of acquisition increased by 114%.”

Therefore, to curb such speculation, he proposes to introduce a Special Stamp Duty (SSD) on residential properties, on top of the current ad valorem property transaction stamp duty. Any residential property acquired on or after November 20 - either by an individual or a company, listed or unlisted, and regardless of where it is incorporated - and resold within 24 months will be subject to the proposed SSD.

The SSD will be payable jointly and severally by both the buyer and the seller in the resale transaction, and will be calculated based on the consideration for the resale transaction at regressive rates for different holding periods.

It will be charged at 15% if the property is held for six months or less; 10% if the property is held for more than six months but for 12 months or less; and 5% if the property is held for more than 12 months but for 24 months or less.

It is also proposed to disallow deferred payment of stamp duty, including SSD, for residential property transactions of all values, while, to deter non-compliance, the existing statutory sanctions will be extended to cover the SSD. Any person who fails to pay the SSD by the deadline for payment shall be liable to penalties up to 10 times the amount of the SSD payable.

As the effects of US quantitative easing combined with other abnormal influences on the property market are far from over, Tsang confirmed that the government will introduce further measures if circumstances so warrant in the future.

In addition, and simultaneously, the Hong Kong Monetary Authority (HKMA) issued a circular to Hong Kong’s banks requiring them to implement further measures to strengthen risk management in their residential mortgage lending business.

The HKMA is lowering the maximum loan-to-value (LTV) ratio for residential properties with a value at HKD12m (USD1.55m) or above from 60% to 50%, while reducing the maximum LTV ratio for residential properties with a value at or above HKD8m and below HKD12m from 70% to 60%, but the maximum loan amount will be capped at HKD6m.

The HKMA is maintaining the maximum LTV ratio for residential properties with a value below HKD8m at 70%, but the maximum loan amount will be capped at HKD4.8m. It is also reducing the maximum LTV ratio for all non-owner-occupied residential properties, properties held by a company and industrial and commercial properties to 50%, regardless of property values.

The above measures take effect immediately, but loan applications in respect of transactions where a provisional sale-and-purchase agreement for the property was signed on or before November 19 will not be affected.

The Chief Executive of the HKMA, Norman Chan said: "Under the present environment in which interest rates are exceptionally low and there is a huge amount of excessive liquidity, many investors may easily overlook the fact that the income level of Hong Kong people is increasingly trailing the property prices. We are very concerned that the housing market and consequently the mortgage market will become even more exuberant, thereby exposing the banking system to higher risks.”

“The HKMA must introduce appropriate prudential measures in a timely manner to ensure that our banks adopt the necessary risk management standards and practices, and to make our banking system more resilient to shocks, so as to dampen the damage that would be inflicted by the bursting of the asset bubble."

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
TAGS: compliance | tax | investment | economics | business | real-estate investment | fiscal policy | banking | real-estate | offshore | stamp duty | Hong Kong

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