http://www.businesstimes.com.sg/gove...perty-watchers
Latest cooling measures unlikely to work: HK property watchers
Tuesday, December 27, 2016
by Hoe Pei Shan
[email protected]
@PeiShanBT
THE world's least-affordable major city continues to be plagued by troubles in the residential property sector, with housing woes expected to take centrestage during the March 2017 chief executive election.
Incumbent leader Leung Chun Ying has grappled with calls for better use of Hong Kong's land, of which less than 25 per cent has been developed.
This is one of the main reasons housing is expensive and land supply is short, Mr Leung told attendees of a banquet hosted by the Bauhinia Foundation Research Centre think-tank, according to a government press release.
"Every piece of our land could be used for building houses, as long as we, the Hong Kong people, want to do it," he said. "We should have a clear sense on what matters most and what matters little, and it looks to me making sure Hong Kong people have a place to live is the absolute No 1 priority."
The 2016 UBS Global Real Estate Bubble Index puts Hong Kong's housing market in bubble-risk territory, noting that "affordability of housing is the lowest among the cities considered" as real incomes "have virtually stagnated" for many years.
The average living space per person amounts to only 14 square metres, according to the report. Buying a 60 sq m flat costs more than 18 years' income - putting Hong Kong at the top of UBS's price-to-income rankings measuring the number of years a skilled service worker needs to work to be able to buy a 60 sq m flat near the city centre.
Home prices rose for the sixth consecutive month in September, bringing the accumulated increase over nine months to 8.9 per cent, and just 3.5 per cent below the peak in September 2015.
Housing prices in Hong Kong have been supported by mainland Chinese buyers, strong levels of pent-up demand, limited supply and the development of smaller units.
"Demand for primary residential units remained the key driver of Hong Kong's residential market in the first three quarters of 2016," Thomas Lam, senior director and head of valuation and consultancy at real estate consultancy Knight Frank (Hong Kong), told The Business Times.
In September the average price per square metre for a small apartment under 40 sq m - or about one-tenth the size of a basketball court - on Hong Kong island was HK$141,850 (S$26,457), up from HK$141,753 for the same month in 2015.
Meanwhile, the market for ultra-luxury properties - those worth more than HK$100 million - remains "rock solid with capital values holding steady even as the mass market underwent a correction early in the year", Denis Ma, the head of Hong Kong research at global real estate services firm Jones Lang LaSalle, told BT.
"PRC (mainland Chinese) buyers, concerned about further renminbi depreciation and tighter capital controls, were active in the market despite having to pay hefty stamp duty rates."
Hong Kong on Nov 5 raised property stamp duty for the second time in three years to cool soaring real estate prices. This means a 15 per cent stamp duty for all residential purchases - except for first-time buyers who are permanent residents - up from the previous highest levy for residents at 8.5 per cent.
Hong Kong's housing supply is expected to reach 93,000 apartments in the next three to four years, the highest since 2004, Mr Leung has said, helping to reduce home prices by HK$1 million per apartment.
But these measures may be too little too late, said Mr Lam.
"Unaffordable housing disenfranchises the wider public and can stoke social unrest. Only about half of the people own their own homes in Hong Kong, significantly lower than other countries in the region," he said.
"The government's land supply policy, which were corrected too late, has been one of the key reasons why demand has outstripped supply in recent years. Whilst the government has ramped up supply in recent years, a number of studies have shown that it doesn't have enough land to meet housing demand over the long-term."
Loopholes such as the broad definition of a first-time buyer further hamper the policy's efficacy.
Said Mr Ma: "The immediate consequence of the higher stamp duty will be a drop in volumes.
"The drop in volumes may ultimately soften housing prices though we believe this will be only temporary given that mortgage rates remain accommodative and a large amount of pent-up demand still exists within the market."
But stamp duty is only levied on the total value of each sales agreement, which may involve the transfer of multiple properties.
"This means that a buyer that does not own or is mortgaging any residential property - and would therefore be considered a first-time buyer - does not have to pay the higher stamp duty rate; so at the highest rate of stamp duty, will be just 4.25 per cent instead of 15 per cent," said Mr Ma.
"The higher rates of stamp duty can also be avoided if the property is held by a company and sold via the transfer of shares. If the transaction is between unrelated parties, then the stamp duty levied is just 0.3 per cent."
Hong Kong billionaire Edwin Leong, one of Hong Kong's largest retail landlords, is one of many wealthy buyers who have gotten around the new property curbs.
He reportedly saved almost S$24 million on his tax bill by qualifying as a first-time homebuyer in his purchase of three luxury apartments on the Peak for HK$1.2 billion on the same day last month. This is despite Mr Leong owning more than 300 other properties through his company, Tai Hung Fai Enterprises Co.
"There have been numerous cases that have involved family members buying homes under their own names to skirt the higher stamp duties," said Mr Ma.
"Trying to close this loophole, however, would infringe on the rights of individuals as being homeowners."
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