Hong Kong implements adjustments to residential measures to stimulate the market

In his second Policy Address, Chief Executive John Lee Ka-chiu emphasized the importance of upgrading the economy, pursuing development, improving people’s livelihoods, and promoting happiness. He conducted extensive consultations and gathered public input in more than 40 sessions and visits to various districts. This Policy Address represents a combination of previous initiatives and new directions for the city, focusing on benefiting all citizens.

Due to the limited housing supply and strong demand for property purchases, the government has implemented demand-side management measures since 2010 to curb short-term speculation and prioritize Hong Kong residents’ housing needs. However, in the past year, rising interest rates, moderate economic growth, and declining residential property transactions have led to downward adjustments in property prices.

Considering the projected increase in housing supply in the coming years and the overall market conditions, the government has decided to adjust the demand-side management measures for residential properties, effective immediately – from 25 October. These adjustments include:

1)?? Shortening the Special Stamp Duty (SSD) period from three years to two years. Property owners who sell their properties two years after acquisition will no longer be required to pay the 10% SSD based on the property price.

2)?? Reducing the Buyer’s Stamp Duty (BSD) and New Residential Stamp Duty (NRSD) rates by half, from 15% to 7.5%, to alleviate the financial burden on Hong Kong Permanent Residents (HKPRs) who already own residential properties and to reduce costs for non-HKPRs acquiring residential properties.

3)?? Introducing a stamp duty suspension arrangement for incoming professionals’ residential property acquisitions, building upon the stamp duty refund arrangement introduced last year. Under the suspension arrangement, incoming professionals must pay the BSD and NRSD when they buy a property, but the payment is suspended until they become HKPRs. If they do not become HKPRs, the relevant stamp duty amount must be paid. This new arrangement applies to sale and purchase agreements from 25 October.

The Special Stamp Duty (SSD) adjustment shortens the holding period required before selling a property without incurring the tax. Previously, a three-year holding period was necessary, but now properties purchased two years ago can be freely sold in the market without paying the SSD. This change provides more flexibility for property owners and may lead to an increase in secondary supply.

According to the Rating and Valuation Department’s data, residential prices declined 13.9% in 2021 and 10.7% in 2020. Owners who purchased properties between 2020 and 2023 and plan to resell them within three years need prices to increase significantly to offset the 10% SSD. However, it is unlikely that flats can be resold at higher prices, indicating that secondary supply may not see significant growth in the remaining months of this year.

The reduction of the Buyer’s Stamp Duty (BSD) and the New Residential Stamp Duty (NRSD) from 15% to 7.5% aims to attract more foreign buyers and investors in the residential market. The policy address also optimizes the refund arrangement for the double stamp duty (BSD) for foreign professionals, which previously allowed them to apply for a refund only after they become permanent residents. Now, if they fail to become permanent residents, they will be required to pay the relevant taxes.

According to Hong Kong Immigration Department statistics, since the High-end Talent Pass Scheme launched on 12 December last year, 41,043 applications had been received as of 31 July, of which 30,183 were approved, 95% were from the mainland. Some 22,765 people have received visas/entry permits, and more than 13,000 have arrived in Hong Kong. Some 27,501 “High-Talent Access” dependents were green-lit during the same period, of which more than 12,000 have arrived in Hong Kong.

These people are not permanent residents, and they now only pay a 15% tax (BSD + DSD) on home purchases in Hong Kong. Some of them can afford these taxes to purchase flats. However, the seven-year residency criteria will be too long for some, and they may leave before then. So, the new measures will release some purchasing power, but leasing will remain hot in the coming few months. ??

Investors can benefit from the reduced NRSD and the accumulated depreciation of popular estate developments, which have experienced declines of up to 20% in the past two years. These percentage declines can easily offset the 7.5% NRSD, leading to an expectation that investors will take advantage of this opportunity.

The stamp-duty adjustments are a measured approach to stimulate the market without causing significant price surges. Instead, the focus is increasing secondary transaction volume by rapidly releasing purchasing power. The government will closely monitor the residential market to see if future adjustments are needed.

Overall, these adjustments aim to provide relief to property owners and stimulate market activity while maintaining a balanced approach to market stability and future developments.