(Source : Information Services Department)
LCQ20: Buyer's Stamp Duty
Following is a question by the Dr Hon Lam Tai-fai and a written reply by the Acting Secretary for Transport and Housing, Mr Yau Shing-mu, in the Legislative Council today (Nov 28):
The Government announced on October 26, 2012 the launching of further measures to address the overheated property market. Such measures include the introduction of a Buyer's Stamp Duty (BSD) under which all companies and non-Hong Kong permanent residents acquiring residential properties are required to pay a tax of an amount equivalent to 15% of the prices of the properties. The Government has explained that BSD applies to all companies and exemption cannot be granted because it is difficult to plug the loophole that the duty may be evaded by effecting property transactions through the transfer of shares. However, some people from the legal sector have suggested that the authorities may exempt those companies registered in Hong Kong whose shareholders are all Hong Kong permanent residents (HKPRs) from paying BSD on the conditions that all shareholders of the company concerned have made a statutory declaration to confirm that they hold the full beneficiary interest of the shares under their names (and the making of false declaration entails criminal liabilities), and an undertaking that they will not transfer any shares within certain years from the company concerned being exempted from paying BSD, reneging which the transferor and the transferee are required to render a make-up payment for BSD immediately. In this connection, will the Government inform this Council:
(a) whether the Government will consider the aforesaid suggestion to exempt those eligible Hong Kong-registered companies from paying BSD; if it will, of the details; if not, the reasons for that;
(b) as the Government has indicated that the aforesaid measure is "an extraordinary measure introduced under exceptional circumstances" and it will consider cancelling the measure after "the demand-supply situation of the property market has regained its balance", whether the Government has specific criteria for evaluating if the property market has reached the state in which "the demand-supply situation has regained its balance"; if it has, of the details; if not, the reasons for that;
(c) how the Government determined that BSD should be set at the level of 15% of the prices of properties;
(d) as the information of the Land Registry shows that there were 71 012 residential property transactions in the first 10 months of 2012, whether the Government has assessed the impact of BSD on the number of transactions and prices of residential properties; if it has, of the details; if not, the reasons for that;
(e) whether it has, prior to introducing BSD, assessed how this duty will affect the number of cases of foreign investors making investments in Hong Kong; if it has, of the details; if not, the reasons for that;
(f) as the Government expects that the aforesaid measures will enable the residential property market to "accord priority to meeting the housing needs of HKPRs", whether the Government has assessed the number of HKPRs who will be benefited from the implementation of BSD and acquire residential properties; if it has, of the details; if not, the reasons for that;
(g) whether the Government has considered exempting charities, non-profit-making organisations and public organisations from paying BSD for acquisition of residential properties; if it has, of the details; if not, the reasons for that;
(h) as the Government has indicated that it has arranged to meet with the consuls of various countries in Hong Kong, the Law Society of Hong Kong, the Real Estate Developers' Association of Hong Kong, the Estate Agents Authority, the estate agency trade, as well as local and foreign chambers of commerce, etc. to brief them on the new measures, of a name list of the persons whom the Government has met, together with the dates of the meetings; if it cannot provide such information, the reasons for that; whether those persons have expressed support for the Government's implementation of BSD; if they have, of the details; if not, the reasons for that;
(i) whether it has assessed the impact of BSD on the employment and income of estate agents and staff in the mortgage departments of banks; if it has, of the details; if not, the reasons for that; and
(j) as the Secretary for Financial Services and the Treasury indicated in the reply to a Member's question at the Legislative Council meeting of November 14 this year that the Hong Kong Monetary Authority (HKMA) was aware that more funds may flow to the purchase of vehicle parking spaces or non-residential properties after the introduction of BSD, and HKMA would thus give "reminders" to banks, and the banks would also take measures to offer loans under stringent loan-to-value ratios to those investing in vehicle parking spaces so that the overall macroscopic risks might be lowered, whether the Government has assessed if this remark will cause banks to tighten up their vetting and approval of mortgage applications for residential properties; if it has, of the details; if not, the reasons for that?
There are ten aspects raised in Dr the Honourable Lam Tai-fai's question. I would address them in a consolidated manner as follows.
The Buyer's Stamp Duty (BSD) was announced by the Financial Secretary on October 26, 2012, which will be levied at a flat rate of 15% and be charged for all residential properties acquired by any person except a Hong Kong Permanent Resident (HKPR). In determining the BSD rate, we have drawn reference from the experience of Singapore and Macau. Singapore has imposed a 10% Additional Buyer's Stamp Duty on residential property transactions involving companies and foreigners since December 2011. In Macau, relevant legislation was passed in end October 2012 to levy an additional 10% stamp duty on residential property transactions involving buyers who are legal entities (i.e. companies) and non-Macau residents. We have decided to pitch BSD at 15% in order to achieve a sustainable and desired impact.
On the exemptions for BSD, we plan to draw reference from the existing exemption arrangements for the Special Stamp Duty and provide similar arrangements for BSD as appropriate. For instance, if residential properties are offered as a gift to charitable institutions exempted from tax under Section 88 of the Inland Revenue Ordinance (Cap.112), BSD should be exempted. The specific exemption arrangements for BSD will be set out in detail in the Bill to amend the Stamp Duty Ordinance, which is planned to be introduced into the Legislative Council in January 2013. In drafting the Amendment Bill, the Government takes into account the various comments received, including those received from the meetings arranged to brief the relevant stakeholders on the new measures. The dates of these meetings are set out at Annex.
In pursuant of our policy intention of according priority to HKPR buyers with a view to meeting their housing and home ownership needs under the current tight supply situation in the residential property market by reducing the demand of non-HKPRs to purchase properties, we consider that other than HKPRs, all other persons and companies should not be exempted from BSD. In law, a company is an entity independent from its shareholders. Under the legal framework of Hong Kong, we have all along distinguished companies by whether they are established locally or overseas, instead of making reference to the HKPR status of shareholders. Furthermore, apart from the above stated policy and legal considerations, it is commonly known that the structure of a company can be complicated and take various forms. In order to achieve different controlling objectives, in addition to realising them through various forms of share transfer, one may also issue new shares to change the controlling stake. While we may statutorily require companies registered in Hong Kong, with all shareholders being HKPRs, to declare the change in share distribution and identity of shareholders every time they stamp for share transfer, in order to avoid the transfer of interests in residential properties to non-HKPRs by way of share transfer, the declaration mechanism as proposed in the question cannot avoid the situation where interests in residential properties are transferred by issuing new shares, since such practice is not subject to stamp duty. All in all, it is not possible to put in place a mechanism that can effectively plug all the loopholes identified, and the monitoring work so required would be extremely complicated to an extent that might not be proportionate to the effectiveness of BSD.
While we understand that BSD may inevitably create certain inconvenience to certain parties, we, as an accountable Government, have to act in the interest of all, and strive to safeguard the livelihood of the general public and Hong Kong’s financial stability by preventing the risk of a property bubble from jeopardising the well-being of the community. We consider that ensuring the health and stable development of the property market is in the best interest of society as a whole. In fact, as the Financial Secretary wrote in his blog, that property prices have exceeded buyers' affordability may be a reason for the recent drop in transaction volume. If there is any downward adjustment to property prices after the introduction of the new demand-side management measures, the transaction volume may increase as a result, which may bring about a positive impact on the business of the estate agency trade and other relevant sectors.
The Government envisages that BSD would reduce the demand of non-HKPRs to purchase properties in both primary and secondary markets, thus according priority to HKPR buyers, forestalling a further build up of exuberance in the property market in the midst of global liquidity glut and exceptionally low interest rates, and safeguarding the overall macroeconomic and financial stability of Hong Kong. Given that the property market is affected by a wide range of factors, it would not be possible to quantify the exact impact and benefits of BSD, including its impact on foreign investment which is affected by, inter alia, global macroeconomic outlook, financial market developments and investors' risk appetite, which are subject to considerable uncertainty over time.
The demand-side management measures introduced on October 26, 2012, including BSD, are extraordinary measures introduced under the current exceptional circumstances. We would consider withdrawing these measures after the demand-supply situation of the property market has regained its balance. We will continue to closely monitor the property market by making reference to a basket of indicators, including property prices, the housing affordability for the general public, the volume of property transactions, the supply of residential properties, mortgage payments, rent-to-income ratio, etc.
As far as the mortgage lending business is concerned, the Hong Kong Monetary Authority (HKMA) has all along required banks to adopt a prudential approach to processing any loan application, including those for car parking spaces. After the implementation of the fifth round of countercyclical prudential supervisory measures for mortgage lending on September 14, 2012, HKMA has received enquiries from banks on the actual operation of mortgage loan processing for car parking spaces. On this, HKMA has liaised with major banks engaged in mortgage lending business with a view to obtaining further information about the standards they have adopted in processing this type of mortgage lending. HKMA is aware that major banks engaged in mortgage lending for car parking spaces have been processing such applications with prudence by, for example, adopting a maximum mortgage ratio of 50%, and a maximum loan repayment period of 15 years. The mortgage to income ratio and that under the stress test are also similar to those adopted for mortgage lending for residential properties. Subsequently, HKMA has discussed with the banking sector with a view to requiring banks to review their existing practice and take necessary measures to ensure that their standards adopted for approving mortgage lending applications for car parking spaces are consistent with those adopted by major banks. Since most of the banks have adopted the above mentioned or even more prudent standards in processing mortgage lending applications for parking spaces, HKMA considers that such a requirement would not have any impact on banks' processing of mortgage lending applications. HKMA will, through sustained efforts, monitor whether banks have adopted consistently prudential standards in processing mortgage lending applications, including those for parking spaces.
Ends/Wednesday, November 28, 2012
Issued at HKT 14:55