Friday 15 December 2017

Hong Kong closes off tax loophole for property investors

Hong Kong property investors had been avoiding stamp duty
Hong Kong property investors had been avoiding stamp duty

Daniela Wei and Simon Lee

Hong Kong's government is tightening property rules for the second time since November as investors have snapped up multiple units in one shot to qualify for lower tax rates.

The new rules, intended to prevent the purchasing of several properties in one contract to avoid stamp duties, will take effect from midnight, Hong Kong's Chief Executive Leung Chun-ying said in a briefing on Tuesday.

First-time home buyers acquiring more than one property in a single contract need to pay 15pc in taxes, Leung said.

Hong Kong's leaders in November imposed higher stamp duties targeted at all but first-time local buyers. The curbs have done little to cool demand, with developers offering discounts and tax rebates. People have also been able to find legal ways around the restrictions, with some purchasing several units at the same time so they could qualify for lower tax rates.

"Though buying multiple flats in one contract accounts for a small proportion of residential apartment transactions, there's a noticeable increasing trend," Leung said at the briefing. "This doesn't only go against the government's goal to clamp down investor demand through the new stamp duty, it also fuels the property market sentiment."

Existing home prices have set new records in Hong Kong, the world's least affordable home market, according to the Centaline Property Centa-City Leading Index. Even after the Federal Reserve raised interest rates, a move that presages higher mortgage rates, developers have seen brisk sales.

Cheung Kong Property Holdings Ltd last week offered 40 sq m (430 sq ft) flats in east Hong Kong island for at least HK$10.3m (€1.25m), Apple Daily reported.

Not that Hong Kong's residential property investors have been alone in seeking to beat the government's efforts to suppress demand.

Last year, Sun Hung Kai Properties Ltd announced a mortgage offer at one of its projects worth as much as 120pc of a home's value. Cheung Kong Property Holdings Ltd has its own finance units that can help top up bank mortgages and circumnavigate loan-to-value ceilings.

Real-estate agencies, such as Midland Realty and Centaline Property Agency Ltd, have their own finance arms and have been offering zero down-payment plans to existing home owners.

There's little the Hong Kong Monetary Authority can do. Finance companies are regulated by the Money Lender Ordinance, which is enforced by the Commissioner of Police. while real estate developers aren't regulated at all.

(Bloomberg)

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