Hong Kong Imposes Tax on Foreign Property Buyers | Bedford NY Real Estate

Hong Kong has levied a new 15% tax on property purchases made by foreigners, in one of the government's boldest moves yet to curb speculation in an overheating housing market.

Hong Kong Financial Secretary John Tsang said the new measures, which take effect Saturday, show the government's resolve to stabilize the residential market while the easy lending environment continues to boost demand for property despite an economic slowdown.
"This is an extraordinary measure introduced under exceptional circumstances," Mr. Tsang said in a news conference late Friday.
The announcement comes just days after the city's de facto central bank sold nearly $2 billion worth of the local currency to defend its peg to the dollar, a sign of hot-money inflows from the new round of U.S. credit easing that some analysts fear could affect real estate.
Until now, the government has largely resisted calls to target nonlocal property investors to cool prices, because the free flow of foreign investments strikes at the heart of Hong Kong's liberal market principles. Yet the administration is under increasing pressure to address public resentment over housing affordability, and the higher risks of a bubble.
Under the new moves announced Friday, property buyers who aren't Hong Kong permanent residents must pay a tax of 15% for any residential property purchase. The rules also apply to local and nonlocal companies as buyers.
In addition, to discourage speculation, the government further raised special transaction taxes to as much as 20% on properties sold within three years of their purchase, extended from two years previously. These taxes will continue to apply to nonlocal property owners as well.
Hong Kong joins other Asian countries with restrictions in place on foreign property buyers. Singapore in December imposed a 10% tax on residential property purchases by foreigners to stabilize the housing market.
Property prices have doubled over the past four years amid rock-bottom interest rates and strong foreign demand, particularly among mainland Chinese investors seeking higher returns and a desire to move assets abroad. Though a part of China, Hong Kong operates under its own set of laws and institutions, including a separate currency.
So far this year, prices have soared 20% to a fresh high, surpassing the peak reached in the 1997 property bubble, even as the city's economy contracted 0.1% in the second quarter from the first three months, and with the government forecasting gross domestic product growth this year at just 1% to 2%.

CLSA analyst Nicole Wong said the latest moves will discourage mainland Chinese property buyers in the city, "hence removing a very meaningful portion of demand." The brokerage estimates that Chinese buyers accounted for about 37% of the total value of newly built apartments sold in Hong Kong in the second quarter.
Because of the U.S. dollar peg, the city's monetary policy must closely mirror moves made by the U.S. Federal Reserve, which has kept interest rates at close to zero, and is expected to remain there at least to mid-2015. That means the Hong Kong Monetary Authority hasn't been able to tighten monetary policies to curb real- estate demand.
The city's government since 2009 has launched many measures to cool the market, such as raising transaction levies, boosting property available for housing development and tightening mortgage terms. But the efforts have done little to slow the rise in prices, as property investments have remained attractive.
Mr. Tsang said the new measures are to "help alleviate the demand for housing by according priority to meeting the needs of Hong Kong permanent residents."
He added: "We shall consider withdrawing this measure when the market regains its balance," noting he expects the housing supply to increase more substantially over the next three to four years.
Still, the increased transactions costs could lead to reduced supply in the housing market over the near term, thus keeping prices high. "Domestic demand is still likely to support home prices near-term," said Frances Cheung, senior strategist at Crédit Agricole.

via online.wsj.com