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(Source : Information Services Department)

LCQ19: Measures to address the overheated property market


    Following is a question by the Hon Lam Tai-fai and a written reply by the Secretary for Transport and Housing, Professor Anthony Cheung Bing-leung, in the Legislative Council today (July 3):


    The Government has launched a series of tax measures, including the Special Stamp Duty (SSD), the Buyer's Stamp Duty (BSD) and the doubling of the ad valorem stamp duty rates (the double AVD) on grounds of according priority to Hong Kong Permanent Residents (HKPRs) to meet their home ownership needs and cooling down the overheated property market, etc.  However, some members of the public have pointed out that these measures have resulted in a shrinking turnover in the property market as well as affected the turnover and employment rates of the related industries. In this connection, will the Government inform this Council:

(a) whether there are data proving that the aforesaid measures have effectively assisted HKPRs in purchasing their homes; if there are, of the details; if not, the reasons for that;

(b) whether it has studied if the proportion of the cases of first-time home purchases by HKPRs to the total number of transactions has increased since the launch of the aforesaid measures; if the outcome of the study shows that the proportion has decreased instead of increasing, whether it reflects that the aforesaid measures have failed to assist HKPRs in purchasing homes with priority;

(c) of the Government's estimated tax revenues generated from SSD, BSD and the double AVD respectively in the next three years;

(d) given that the Federal Reserve of the United States is preparing a plan for withdrawal of the quantitative easing monetary policy, including the consideration of a gradual decrease in Treasury bond purchases in the coming few months, whether the authorities will assess afresh and consider drawing up a timetable to withdraw the aforesaid measures in the light of the recent global economic situation; if they will, of the details; if not, the reasons for that;

(e) given that the residential and non-residential property transactions have shrunk since the launch of the aforesaid measures, whether the Government has assessed the blows and impact of the situation on the related industries (e.g. property agency, interior decoration, furniture and cleansing industries, etc.); if it has, of the details, if not, the reasons for that; of the latest unemployment rates and under-employment rates in these related industries;

(f) given that the Chairman of the Subsidized Housing Committee under the Hong Kong Housing Authority said last month that if a drop by 20 per cent in the property prices could not be achieved, the Government should decisively launch further measures, whether the Government has formulated new measures to cool down the property market further; if it has, of the details, including the target rate of decrease in property prices; whether it has drawn up any indicators for launching these further measures; if it has not, of the reasons for that;

(g) whether the Government had set any effectiveness indicators when the aforesaid measures were launched; if it had, of the details; if not, the reasons for that;

(h) whether the Government had, when launching the aforesaid measures, formulated any plans to withdraw these measures to deal with the impact brought by a sudden downturn of the property market; if it had, of the details; if not, the reasons for that;

(i) given that this Council is still scrutinizing the bills introduced by the authorities on implementing the aforesaid measures, whether the Government has prepared contingency plans in the event that the bills concerned are not passed by the Legislative Council; if it has, of the details; if not, the reasons for that;

(j) under what circumstances the Government will consider exempting companies which are wholly owned by HKPRs from paying BSD for acquisition of residential properties; and

(k) given that in a number of recent transaction cases, the per-square-foot prices of some Home Ownership Scheme (HOS) flats have peaked time and again, while the atmosphere of the HOS Secondary Market has also been exuberant and the prices have repeatedly reached record highs, whether the Government has assessed if the measures which allow eligible White Form HOS applicants to purchase HOS flats with premium not paid in the HOS Secondary Market are contrary to the aforesaid measures for cooling down the overheated property market?



    Property prices have been exuberant in recent years due to the extremely low interest rates, abundant liquidity environment, and the tight supply situation. To address the overheated property market, the Government announced further demand-side management measures in October 2012, i.e. the enhanced Special Stamp Duty (SSD) and the Buyer's Stamp Duty (BSD), to combat speculative activities, cool down the property market, and accord priority to the home ownership needs of Hong Kong permanent residents (HKPRs) in the midst of the tight supply situation. In view of signs of renewed exuberance state of the property market in 2013, the Government announced another round of demand-side management measures in February 2013, including the doubling of the ad valorem stamp duty (AVD) rates for all property transactions, to reinforce the demand-side management measures so as to cool down the property market.  

    In respect of the specific questions asked by the Hon Lam Tai-fai, our consolidated reply is as follows:

    The above-mentioned demand-side management measures have helped stabilise the residential property market and helped address the home ownership needs of HKPRs. As a matter of fact, stamp duty statistics from the Inland Revenue Department (IRD) indicate that purchases of residential property by non-local individuals and companies (local and non-local) plunged to a monthly average of 249 cases, or 4.6 per cent of total transactions, in the first five months of 2013, markedly below the monthly average of 1 089 cases, or 13.6 per cent of total transactions, from January to October 2012 (i.e. the period before the announcement of the demand-side management measures mentioned above). The Government does not keep statistics on first-time home buyers as residential property buyers are not required to provide information as to whether they are first-time buyers or not. Nevertheless, under the proposed new AVD regime, if a HKPR buyer is not a beneficial owner of any other residential property in Hong Kong at the time of acquiring a residential property, he or she will be exempted from the new AVD rates. We consider that such an arrangement will effectively address the needs of HKPRs who are first-time home buyers.

    The demand-side management measures are not intended to generate revenue for the Government. As such, we have not estimated the amount of revenue that these measures may generate.

    The employment situation in the property-related sectors, including the real estate sector, the decoration, repair and maintenance for the building sector, as well as the cleaning and similar services sector, generally improved over the past few years, with the unemployment rates showing a noticeable decline amid a generally tight labour market with full employment. While the Government's measures to curb the housing market exuberance may have affected the various property-related sectors to different extents, the impact had been cushioned by a vibrant domestic sector and the overall tightness in the labour market so far. Relevant data on unemployment rates, underemployment rates and year-on-year changes in business statistics are at Annex for reference. More importantly, certain demand-side management measures are considered necessary to curb market exuberance with a view to ensuring the stable and healthy development of the property market. These measures are intended to help protect Hong Kong's macroeconomic and financial stability, to the benefit of the overall economy in the long term. If we do not cool down the overheated property market in a timely manner, property prices will further deviate from economic fundamentals, and would lead to a greater impact on the market and more painful adjustment to society should there be any change in interest rates and the external environment. On balance, we believe that the measures serve the best interest of the community as a whole.

    As we have repeatedly explained at meetings of the Bills Committee on the Stamp Duty (Amendment) Bill 2012, the suggestion that companies owned by HKPRs be exempted from the BSD is not acceptable given various considerations. In the midst of the current low interest rates, abundant liquidity and tight supply situation, accepting such a proposal will send a wrong message to the public that the Government is not determined to cool down the property market. To do so may in turn actually fuel the property market. This proposal would also cause confusion to the fundamental legal principle under the company law that "a company is an entity independent of its shareholders", and would create loopholes to circumvent the BSD by way of transfer of company shares. Even with the imposition of conditions to restrict the transfer of company shares as suggested by some, there would still be loopholes that are extremely difficult, if not impossible, to plug. As such, the proposal would run the risk of incentivising one to acquire residential properties in the name of a company, thereby undermining the effectiveness of the various demand-side management measures. Besides, most Hong Kong people acquire residential properties for dwelling purpose in their own names.  Those who choose to use companies as a vehicle to acquire residential properties do so mainly for the sake of convenience in asset management. We consider that, while the BSD will increase the cost of such a practice, it will not lessen the opportunity for HKPRs to acquire residential properties, as HKPRs who have a pressing home ownership need may still purchase a residential property in their own names. Under the present exceptional market situation, we consider it necessary to have the extraordinary measures in place, and their effectiveness should not be reduced intentionally or incidentally.  

    Although the residential property market has shown signs of cooling down following the introduction of the demand-side management measures, the market sentiment remains unsettled.  Despite the recent message from the Federal Reserve of the United States on the possibility of gradually reducing its bond-buying programme, the risk of a property bubble cannot be ignored, taking into account the fact that the low interest rates and abundant liquidity environment still persist, as well as the tight supply in the short run.  According to statistics, overall flat prices in April 2013 have soared by 127 per cent over the recent trough in late 2008. Also, home purchase affordability (i.e. mortgage payment to income ratio) has risen to 56 per cent in the first quarter of 2013, exceeding the long-term average of 48 per cent over the period from 1993 to 2012. The Government will continue to closely monitor the development of the residential property market, with reference to a basket of indicators including property prices, the housing affordability of the general public, the volume of property transactions, the supply of residential properties, growth in mortgage lending, speculative activities, etc. We have proposed in the relevant Bills, which implement the various demand-side management measures, that future adjustments to the relevant duty rates should be made by means of subsidiary legislation subject to negative vetting by the Legislative Council, in order to provide the Government with the necessary flexibility to adjust the applicable rates (to "zero" if necessary) in a timely manner with reference to the market situation.  It has all along been the Government's position that, in case there is a major adjustment to the property market which affects the macroeconomic situation, the Government will not hesitate to introduce appropriate measures to ensure the healthy and stable development of the residential property market.

    IRD has been recording all property transactions that may be subject to the proposed stamp duty measures. After the enactment of the relevant Bills, IRD will recoup from the parties concerned the applicable stamp duties. Before the enactment of the Bills, some of the properties which are subject to the stamp duty measures may be transferred and disposed of again. The longer it takes to pass the relevant Bills, the more complicated the situation will become. This will result in uncertainty to the operation of the property market and land title of the properties transacted if the relevant Bills are not passed in time. As such, we will work closely with the relevant Bills Committees to facilitate their scrutiny of the two Bills respectively.

Home Ownership Scheme Secondary Market

    In response to the home ownership aspirations of those with White Form (WF) status during the interim period from now until the first batch of new Home Ownership Scheme (HOS) flats are completed in 2016/17, we have introduced an interim scheme whereby 5 000 WF buyers each year will have a chance to purchase HOS flats with premium not yet paid.  The interim scheme can also facilitate the turnover of HOS flats, thereby revitalizing the HOS Secondary Market.  It also addresses the community's previous request in this regard.

    The Government has been monitoring price changes in the property market closely. Under the current environment with low interest rates and abundant liquidity, the overall property prices (including the transaction prices of second-hand HOS flats) have remained high. The community is also concerned about the increase in prices of second-hand HOS flats with premium not yet paid. However, changes in property prices (including the changes in prices of HOS flats with premium not yet paid on the Secondary Market) are affected by many factors, such as the supply of residential flats, the volume of transactions, the situation of mortgage lending, interest rates, the affordability of those who wish to buy, the economic situation, people's expectations regarding the prospect of the market, as well as any measures that the Government may take that impact on the market. It is simply not safe to come to the conclusion that the changes in the prices of second-hand HOS flats are due to the implementation of the interim scheme. As a matter of fact, since 2010, the rate of increase in transaction prices of HOS flats in both the open market (i.e. flats with premium paid) and the Secondary Market (i.e. flats with premium not yet paid) is higher than that of the overall property market.

    The interim scheme is still at an early phase of implementation. We will keep in view the market responses as well as the implementation of the interim scheme to evaluate the effectiveness of the scheme. Moreover, the Government has been reminding members of the public to exercise caution and should make home purchase decisions based on their own affordability.

Ends/Wednesday, July 3, 2013
Issued at HKT 16:20