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Hong Kong Slaps Stamp Duty On Foreign Property Buyers

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

30 October 2012


Financial Secretary John Tsang has announced the introduction, with effect from October 27, 2012, of two additional tax measures to counter inflationary tendencies in Hong Kong’s property market, and thereby, hopefully, contribute to its stable development.

Tsang said the first measure is to increase the rate of Special Stamp Duty (SSD) rate, which was originally introduced in November 2010 to curb short-term property speculative activities. The duty has been charged when a residential property is sold within two years of its purchase, but that will now be extended to three years.

The SSD payable for properties held for six months or less will increase from 15% to 20%, and to 15%, from 10%, if a property is held for more than six months but less than one year. It will rise from 5% to 10% if the property is held for more than one year but less than three years (rather than two years originally).

The second measure is to introduce a Buyer's Stamp Duty (BSD). It is not applicable to Hong Kong permanent residents (HKPRs), but other buyers, including local and non-local companies, are required to pay an additional duty of 15% on top of the existing stamp duty.

Exemptions will be provided to certain transactions including, for example, those involving a HKPR and his or her close relatives who are not HKPRs.

“We are aware that the BSD will cause inconvenience to some non-local buyers,” said Tsang. “We hope they will understand this is an extraordinary measure introduced under exceptional circumstances. We shall consider withdrawing this measure when the market regains its balance.”

“These two measures will go into effect after midnight tonight (October 26),” he indicated. “Properties acquired today or before will not be affected. We shall introduce the necessary legislative amendments to the Legislative Council as soon as possible.”

It was disclosed that, since the SSD was launched, resale within 12 months has virtually disappeared. However, the number of transactions for resale between 12 to 24 months has increased from 83 cases in March this year to 218 cases in September. The number of residential property transactions taken up by non-local buyers has also gone up from 3.1% in 2008, to 4.5% in 2010 and 6.5% in 2011.

It is said that Hong Kong’s current property boom is clearly fuelled by abundant global liquidity and low interest rates. Overall flat prices have risen by 20% during the first nine months of 2012. By September 2012, overall flat prices had surpassed their 1997 peak by 26%.

“The US Federal Reserve has extended its pledge to maintain an exceptionally low interest rate at least until mid-2015,” Tsang added. “I am concerned this may extend the investment horizon of short-term speculative activities. The figures suggest we need to work on demand-side measures, in addition to supply-side measures.”

He pointed out that the objective of the two new measures is to help alleviate demand for housing by according priority to meeting the needs of HKPR, under the present exceptional circumstances of an overheated property market with supply shortage. He said the government knows that the core problem of Hong Kong’s property market is the lack of supply, but that the housing supply should increase in the coming three to four years.

Tsang also confirmed that the government will “continue to monitor the property market closely. If necessary, we shall introduce further measures to maintain the healthy and stable development of the market.”

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: individuals | tax | investment | real-estate investment | law | real-estate | legislation | tax rates | stamp duty | Hong Kong | legislation amendments | inflation

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