Hong Kong | Property tax loophole plugged amid home-buying spree

Hong Kong’s government tightened property rules for the second time since November to shut a loophole that allowed investors to snap up multiple units in one shot to qualify for lower tax rates.

Under the new rules, first-time home buyers acquiring more than one property in a single contract will be charged the same 15 percent stamp duty that applies to purchases of a second property, rather than the 4.25 percent duty for first-time buyers. The change, announced late Tuesday by Hong Kong’s Chief Executive Leung Chun-ying, took effect at midnight.

“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 a briefing on Tuesday. “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.”

Hong Kong’s leaders are seeking to address a gap that allowed the richest buyers to take advantage of rules intended to help first-time home buyers, as they face rising discontent over wealth inequality and skyrocketing housing costs. The previous attempt to rein in the market in November did little to cool demand, with prices setting new records this year in the  world’s least affordable market. People have also been able to find legal ways around the restrictions, with some purchasing several units at the same time so they could still qualify for lower tax rates.

“The new measure will make it fairer for buyers of a single property,” Willy Liu, a director at Ricacorp Properties Ltd., said in an email.

However, Liu and other analysts say the latest move will do little to cool prices in the housing market.

“The measure’s real impact on the housing market will likely be mild, if not negligible,” Alan Jin, Asia ex-Japan property analyst at Mizuho Securities Asia Ltd. in Hong Kong, wrote in a note. While the practice of buying multiple homes on one contract accounted for about 25 percent of sales in mid-March, the drop in demand from investors “can be easily made up for by real buyers,” he said.

The Hang Seng Property Index was mostly unchanged in Wednesday trading, edging up 0.2 percent at 10:30 a.m. in Hong Kong as investors have gotten used to the futility of such moves. Existing home prices have surged since the previous measures in November.

Housing prices in Hong Kong are close to their peak and economically “unsustainable,” according to Cusson Leung, managing director at JPMorgan Chase & Co.’s Asia Pacific equity research unit.

Price increases in the city have outpaced economic growth “significantly” since 2009 and any external shocks could trigger tighter liquidity in the banking system, he said. MDT/Bloomberg