(Source : Information Services Department)
LCQ22: Introduction of new ad valorem stamp duty
Following is a question by the Hon Jeffrey Lam and a written reply by the Secretary for Transport and Housing, Professor Anthony Cheung Bing-leung, in the Legislative Council today (February 8):
In order to cool down the overheated property market, the Government implemented on November 4 last year a new round of demand-side management measures targeting the residential property market (new measures), under which an ad valorem stamp duty (AVD) at a flat rate of 15% chargeable on residential property transactions has been introduced. The new measures will continue to adopt the exemptions provided under the existing doubled ad valorem stamp duty (DSD) regime, which include (i) allowing buyers to pay AVD at the basic rates (i.e. AVD rates at Scale 2) if they are Hong Kong permanent residents (HKPRs) and do not own any other residential property in Hong Kong at the time of acquisition of the residential property, and (ii) setting a six-month time frame for HKPR-buyers having acquired a new residential property to dispose of their original property. In this connection, will the Government inform this Council:
(1) since the implementation of the new measures, (i) how the transaction volume and average prices of residential properties of each month compare with the relevant figures in the preceding three months, and (ii) of the additional stamp duty revenue brought about by the new measures each month;
(2) whether it will review the new measures on a regular basis (say quarterly); whether it will examine formulating quantitative indicators for relaxation or abolition of the new measures; if it will examine, of the details; if not, the reasons for that; and
(3) if it will conduct a review on whether there is room for relaxing the six-month time frame for disposing of the original property; if it will, of the details?
After a brief period of cooling down from late 2015 to early 2016, the residential property market has staged a sharp rebound since last April amidst a still tight demand-supply situation and repeated delay in the United States interest rate hike. Signs of exuberance have re-emerged since the third quarter of last year, particularly in the mass market flats, with accelerated increase in both housing prices and transactions. The residential property market is moving away from economic fundamentals again. If the Government does not take decisive measures now to stabilise the residential property market, it will heighten the risks of a bubble, and eventually precipitate a very costly adjustment and endanger the overall macroeconomic and financial stability of Hong Kong.
After careful deliberation, the Government announced a new round of demand-side management measure on November 4, 2016, i.e. to increase the ad valorem stamp duty (AVD) chargeable on residential property transactions to a new flat rate of 15%. The new measure increases the transaction costs and thereby reduces investment demand for residential properties, which in turn helps cool down the housing market and guard against further increase in the risks of a housing bubble. The new measure will continue to adopt the exemption and refund arrangements provided for under the existing doubled ad valorem stamp duty (DSD) regime. For acquisition of residential property by a Hong Kong Permanent Resident (HKPR)-buyer who is acting on his/her own behalf and is not a beneficial owner of any other residential property in Hong Kong at the time of acquisition, the lower AVD rates at Scale 2 will continue to be applicable.
Having consolidated inputs from the Inland Revenue Department (IRD), Land Registry, and Rating and Valuation Department (RVD), my reply to the question raised by the Hon Jeffrey Lam is as follows:
(1) There have been signs of cooling off in the residential property market after announcement of the new measure.The recent statistics on residential property market and AVD is set out at Annex.
On transaction volume, the number of sale and purchase agreements of private flats received by the Land Registry in December 2016 and January 2017 were 3 550 and 3 286 respectively (mainly reflecting market situation in November and December 2016, i.e. after introduction of the new measure), representing a drop of about 50% as compared with the monthly average of 7 055 cases from September to November 2016.
On property price, the latest overall price index for private domestic flats in December 2016 (mainly reflecting market situation in November 2016) as announced by RVD was 306.8, comparable with the index in November 2016 (306.6) with a slight month-on-month increase of 0.07%, which was much lower than the monthly increase before introduction of the new measure, i.e. about 3% for September and October and about 0.8% for November.
Besides, according to IRD's record, the number of residential property transactions subject to DSD/new rate of 15% in December 2016 and January 2017 were only 376 and 406 respectively, representing a drop of more than 80% as compared with the monthly average of about 2 350 cases from September to November 2016.
As seen from the statistics above, the new measure is effective in cooling down the residential property market.
(2) The Government will continue to closely monitor the property market movements and the ever-changing external conditions. In considering whether relevant demand-side management measures should be maintained or adjusted, the Government will make reference to a series of indicators, including but not limited to property prices, home purchase affordability ratio, transaction volume, flat supply, changes in local and global economies.
(3) To cater for the situation where an owner acquires a new residential property before disposing of his/her only original residential property, the new measure will continue to adopt the refund mechanism provided for under the existing DSD regime for a HKPR-buyer who replaces his/her single residential property. Under the existing mechanism, a HKPR who has disposed of his/her single original residential property within six months from the date of executing the assignment of the newly-acquired residential property can apply to IRD for a partial refund of the AVD paid within a specified time limit (Note). The amount will be the difference between stamp duties computed at the new rate of 15% and Scale 2 rates.
The refund mechanism above has been thoroughly discussed by the relevant Legislative Council Bills Committee when it scrutinised the Stamp Duty (Amendment) Bill 2013 that implements the DSD measure. We believe that the arrangements concerned have struck an appropriate balance between safeguarding the effectiveness of demand-side management measures and addressing the genuine needs of HKPRs in replacing their properties.
Note: The general time limit for claiming partial refund is either within two years from the date of executing the agreement of sale and purchase of the newly-acquired residential property, or within two months from the date of executing the assignment of disposing of the original residential property, whichever is the later.
Ends/Wednesday, February 8, 2017
Issued at HKT 13:01