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Hong Kong May Increase Sales Taxes on Homes, Sell More Land
April 21, 2010, 4:40 AM EDT
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April 21 (Bloomberg) -- Hong Kong said it will raise sales taxes on some properties and accelerate government land auctions to prevent a bubble in a real estate market where prices surged 29 percent last year.

The city may raise the stamp duty on homes sold for less than HK$20 million ($2.58 million), Financial Secretary John Tsang told lawmakers today. The average size of loans approved in February in Hong Kong was HK$2.21 million, according to the Hong Kong Monetary Authority.

“The government is deeply concerned about the rising trend of property prices,” Tsang said. “I understand the worries of residents about rapidly rising home prices, and I agree that we need to reduce the bubble risk in the property market to avoid any impact on the financial system’s stability and the recovery in the real economy.”

Buying by mainland Chinese and low borrowing costs have driven a 7.4 percent increase in Hong Kong home prices this year, adding to 2009’s advance. The government in February said the stamp duty on homes selling for more than HK$20 million would be raised to 4.25 percent from 3.75 percent as of April 1.

It raised down payments on luxury homes in October. Luxury properties are those that cost at least HK$10 million each or are bigger than 1,000 square feet (92.9 square meters).

“Such mere empty talk is useless in helping to bring home prices down,” Kevin Lai, economist at Daiwa Capital Markets Hong Kong Ltd., said by phone today. “Even if the policy turns real, it won’t help to curb speculation as long as interest rates are kept at a such low level.”

Least Affordable

Hong Kong homes are the least affordable among the world’s major cities and are rapidly becoming less accessible to the residents, according to a study commissioned by the South China Morning Post, the city’s biggest English-language newspaper. The study used international comparisons and Hong Kong government figures, the newspaper said.

The territory had the greatest disparity between rich and poor among Asian cities, according to a 2008 report from the United Nations. The Gini coefficient, which measures wealth inequality, was 0.53, compared with an average of 0.39 for Asia, the report said. A Gini coefficient of zero indicates perfect income equality and 1 reflects perfect inequality.

Two residential sites, one in Kowloon and the other on Hong Kong Island, will be auctioned off in June and July without developers having to indicate interest first to trigger bidding, Tsang said. That would bring to four the total number of sites the government is selling in the coming three months, Tsang said.

Auction System

In Hong Kong, the primary source of land available to property developers is through government auctions. Under the current system, developers must indicate interest in a site on a government list. Once a “trigger price” has been met, the site is auctioned.

The government will change the way it puts sites up for auction, Tsang said in his Feb. 24 budget speech. The government would consider putting sites up for sale even if they haven’t been triggered, he said then.

Hong Kong will hold two land auctions for sites in the New Territories in May with developers triggering the sales.

The city will make about 55,000 new homes available in the next three to four year, Tsang said.

Low mortgage rates and excessive liquidity, coupled with not enough supply are fueling the risk of property-price bubbles, Tsang said.

The 20-year-low mortgage rates won’t be sustained for long as governments around the world wind back stimulus measures, he said. A 3 percent rise in rates would boost monthly mortgage repayments 30 percent, Tsang said, citing a stress test result.

“I urge residents or investors to carefully assess the impact of climbing interest rates on mortgage payments when they consider buying apartments,” Tsang said.

While gains in Hong Kong home prices had “tapered slightly” in recent months, the “increasing risk of a property bubble cannot be ignored,” Tsang said.

The Hong Kong government plans to prevent developers from enticing buyers with inaccurate models of apartments and to scrutinize their sales tactics. Real estate companies should disclose properties sold to their own executives, Secretary for Transport and Housing Eva Cheng said on April 12.

--Editors: Andreea Papuc, Joost Akkermans

To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net

IDIOTS WILL FOREVER BE IDIOTS.BUYING PROPERTY AT PEAK IS AKIN TO BUYING AN ILLIQUID STOCK LIKE AUSSINO,ETC. somemore, buying residential properties machiam hk population 20m, as full of 40storey apartments whereas singapore population 5m only with not so many high rise.
IDIOTS SPECULATE RESIDENTIAL PROPERTY WITHOUT THINKING OF SUPPLY,ETC.only low interest rates,etc.MACHIAM THEY DONT NEED LOANS FROM BANKS TO BUY.IT IS VERY OBVIOUS THEY ARE DAMN IDIOTIC AS THEY NEED TO BORROW FROM BANKS YET NOT SCARED OF RISING RATES!!!!