19 June 2017 - Hong Kong consistently ranks first in the world for the dubious honor of “least affordable urban centre”. Anyone at median wage can expect to pay 18.1 times their gross annual income for a city apartment according to Demographia International Housing Affordability Survey’s study. And this is an improvement compared to the 2015 study where Hong Kong set and holds the record with a median income multiple of 19.
Demographia classifies any region with a median multiple exceeding 5.1 as “severely unaffordable”. Since 2010, Hong Kong had a median multiple of 11.4 times and consistently made this list since.
The Centa-City Leading Index, a monthly index based on all transaction records as registered with the Land Registry, indicates this property trend continuing. The CCL reached its highest levels on May 7th at 156.27 compared to 103.35 in 2013.
To counteract the aggressive increase in property prices, the Government of the Hong Kong SAR has introduced a number of amendments to stamp duty regulations over the years, which include the Special Stamp Duty (SSD), Buyer’s Stamp Duty (BSD), and Ad Valorem Stamp Duty (New AVSD).
| Date | Name | Details |
| 20th Nov 2010 | Special Stamp Duty (SSD) | 15% payable if property is resold within 6 months; 10% if resold within 6-12 months; 5% if resold within 12-24 months |
| 26th Oct 2010 | Buyer’s Stamp Duty (BSD) | 15% on the acquisition of residential property by non-HK permanent residents and local/foreign companies |
| 26th Oct 2010 | Special Stamp Duty 2 (SSD 2) |
Extension of terms on 2010’s stamp duty
20% payable if resold property within 6 months; 15% if resold 6-12 months; 10% if 1-3 years
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| 22nd Feb 2013 | New Ad Valorem Stamp Duty (New AVSD) | 8.5% stamp duty (original 4.25%) payable on the acquisition of any residential and non-residential property. |
| 5th Nov 2016 | Double Stamp Duty (DSD) |
The stamp duty on property transactions for non-first-time buyers will be raised to 15 percent for individuals and corporate buyers.
As of April, the 15% double stamp duty was extended to apply to first-time buyers purchasing multiple properties under a single instrument.
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The most recent Double Stamp Duty passed in November 2016 places significantly higher transaction costs on multiple property owners in an attempt to curb property “flipping” behavior. Previous regulations mostly targeted foreign entities eyeing Hong Kong as a hotbed for property investment. Continued price growth of property has shown that the Government of the Hong Kong SAR is keenly aware of the present pressures facing its citizens and has taken measures to address. However, stamp duty legislation in general seems to have relatively little impact on this behavior.
According to the forecast of Thomas Lam, Head of Valuation and Consultancy at Knight Frank, the introduction of the Double Stamp Duty on November 5th 2016 was expected to move property prices downwards by as much as 30% within 2-months of the legislation passing. Even conservative estimates such as that of Sammy Po, Chief Executive of Midland Realty’s residential division expected a downward price movement of 5%. Now that we’re a few months out, we can clearly see the impact that the Double Stamp Duty has had on the market.
The Double Stamp Duty had the immediate result of stunting transaction volume rather than curbing price growth. For three consecutive months from December to February, there were under 410 15% AVD cases compared to 1,397 cases from 2015 to 2016 according to Colliers’ research report. Overall property transaction volume was down 22% Q-o-Q.
Price trends for residential properties remained unaffected and continued to hit record highs.
Transaction volume rebounded sharply in March from 4,079 in February to 5,856 transactions. April saw complete recovery with 8,945 transactions. The recovery was fueled by first-time home buyers discovering a loophole whereby those acquiring multiple residential properties in a single transaction would only be required to pay the ad valorem stamp duty (AVD). This indicates unabated interest and demand for Hong Kong properties. As of April 2017, the 15% AVD will be applied to all buyers, effectively closing the loophole, for anyone including first-time buyers, who purchase multiple residential units.
As a conclusion, we can determine that the Double Stamp Duty was only effective in the short-term. The market has adjusted to the new regulations and broader variables are more significant in determining residential property prices in Hong Kong.
Factors include:
- Existing low interest rates and the low cost of borrowing
- Limited land supply and high demand
- Global economic conditions
- China economic conditions and policy
- RMB depreciation against USD and the global currency basket
