Hong Kong property market to weather the latest round of control measures
February 28, 2013 / By
Last Friday, February 23, the Hong Kong government and Hong Kong Monetary Authority announced new control measures for the city’s property markets, including non-residential properties. The most punitive of these new measures was the doubling of stamp duties for properties worth over HKD 2 million, capped at 8.5%, and the requirement to pay stamp duty on sale and purchase agreement rather than upon assignment (execution of the conveyance of sale).
So what are the likely outcomes of these new control measures?
If history is anything to go by, we can expect sales volumes to slow and capital values to consolidate over the next few months. Property sectors where we have seen the greatest amount of speculation and where prices have moved too far ahead of underlying fundamentals are likely to face the greatest pressure. Certain parts of the retail property sectors, for example, are likely to enter a window of consolidation. A severe correction in property prices, however, is unlikely given that the underlying drivers of buying demand remain intact; that is, low interest rates, a healthy economy, tight vacancy rates and narrow supply pipelines across the property sectors and a clear lack of investment alternatives. Against this backdrop, we may also see market yields edge up temporarily over the short term.
Another interesting outcome that is likely to arise is a drop in market transparency. With stamp duty now payable upon the signing of the sale and purchase agreement for non-residential properties, confirmor (sub-sales) are set to become a lot more expensive. Market participants could potentially circumvent the requirement of paying the new stamp duty rate by engaging in equity transfers via the sale of property holding companies, which are subject to a much lower stamp duty rate (HKD 5 + 0.2% of the market value). If this trend does indeed take off, then market transparency, in terms of transactional data, will diminish significantly. Our experience, and previous research, has shown that market transparency is an important factor in the growth of property markets, globally. Hence any deterioration transparency could negatively affect Hong Kong’s standing as an international destination for property investment.
