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Hong Kong Property Sales Slide 83% as Higher Tax Deters Weekend Homebuyers

Discussion in 'Topical Discussions (In Depth)' started by Scorpio, Nov 22, 2010.

  1. Scorpio

    Scorpio Скорпион Founding Member Board Elder Site Mgr Site Supporter ++

    Mar 25, 2010
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    Hong Kong Property Sales Slide 83% as Higher Tax Deters Weekend Homebuyers
    By Kelvin Wong - Nov 22, 2010 2:31 AM CT

    Hong Kong Property Sales Slide as Tax Deters Buyers

    Financial Secretary John Tsang on Nov. 19 raised stamp duty and increased deposits, the toughest measures yet to rein in home values that soared 50 percent since January 2009. Photographer: Dale de la Rey/Bloomberg
    Hong Kong Property Sales Slide as Tax Deters Buyers

    Weekend sales of used homes fell 83 percent from the previous week, according to data from Centaline Property Agency Ltd. Photographer: Daniel J. Groshong/Bloomberg

    William Yue was ready last week to pay about HK$11 million ($1.4 million) for an apartment in Hong Kong’s Kowloon Tong district. Now, he’s reconsidering.

    Financial Secretary John Tsang on Nov. 19 raised stamp duties and deposit requirements, and limited mortgage insurance, the toughest measures yet to rein in home values that soared 50 percent since January 2009. Li Ka-shing’s Cheung Kong (Holdings) Ltd. fell the most in six months, and Midland Holdings Ltd., the city’s largest realtor, plunged the most in a decade.

    “The down payment we need to pay would probably be a bit out of our budget,†the 58-year-old Yue said yesterday. “We need to negotiate with the seller again and see if he’d bring down the price. Imposing the extra stamp duty should’ve been enough to curb speculation. All it does is hurt real users like us.â€

    Weekend sales of used homes fell 83 percent from the previous week, according to data from Centaline Property Agency Ltd. The changes mean homes sold within six months of purchase incur a 15 percent stamp duty, while down payments will rise to 50 percent for properties costing HK$12 million or more, and to 40 percent for those between HK$8 million and HK$12 million.

    “The measures will likely have the biggest and most lasting impact on property prices seen to date,†Donna Kwok, a Hong Kong-based economist at HSBC Holdings Plc, said in a report. “Hong Kong has jumped onto the bandwagon of Asian central banks and is erecting its own defenses to fend off the flood†of capital from the U.S. easing, she said.

    Hong Kong’s currency peg to the dollar prevents its de- facto central bank from raising interest rates to deter speculation. South Korea revived a tax on foreigners investing in its bonds last week, while Brazil tripled a tax on purchases of local fixed-income assets by overseas investors.

    Stocks Fall

    The Hang Seng Property Index, which tracks the city’s seven-biggest builders, fell 2.6 percent at the 4 p.m. local time close of trading. It has declined 10 percent since this year’s peak on Nov. 8.

    Cheung Kong, the city’s second-biggest developer by market value, lost 3.2 percent, while Sun Hung Kai Properties Ltd., the largest, slid 3.1 percent. Midland tumbled 17 percent.

    “This is a strong dose to calm down the housing market,†JPMorgan & Chase Co. analysts led by Lucia Kwong wrote in a report dated yesterday. “Given the new measures, we expect slower property sales that drive down†the net asset value of developers.

    The number of transactions at some of Hong Kong’s biggest private housing estates fell to 10 on Nov. 20 and 21, Centaline, the city’s biggest privately held real-estate broker, said in a statement yesterday. There were 59 deals the previous weekend.

    “We’re expecting transactions to drop between 10 and 20 percent for this quarter and prices will probably go down by about 5 percent at least,†said Wong Leung-sing, associate director of research at Centaline.

    Housing Estates

    The broker had only one transaction on Nov. 20 at the 12,700-unit Tai Koo Shing housing estate on Hong Kong Island, from six the previous week, District Manager Kenneth Chiu said yesterday.

    “Most of the buyers we’ve been speaking to said they expect prices to drop further so they’ll hold off from making a decision for now,†Chiu said. “On the other hand, sellers on average are willing to bring down asking prices.â€

    The city’s home prices may drop 5 percent by year-end while transactions may fall 40 percent because of the measures, Credit Suisse Group AG analysts Cusson Leung and Joyce Kwock wrote in a report today. JPMorgan also predicted a 5 percent decline in prices.

    Transactions to Fall

    Prices in some of Hong Kong’s most expensive districts, such as Kowloon Tong on the Kowloon peninsula bordering China, surged 52 percent since the beginning of 2009, according to an index compiled by Centaline. Those gains prompted the International Monetary Fund to warn last week that asset inflation may derail the city’s economy.

    The measures will drag on home price gains rather than reverse the gains, UBS AG said in a report. Property transactions will fall by 20 percent to 30 percent, analyst Eric Wong said, adding that the measures may drive liquidity into other assets such as stocks.

    Under the new measures, properties resold within 6 months to 12 months will incur a 10 percent stamp duty, while those resold between 12 months and 24 months will be charged 5 percent, Tsang said. The levy will be split between buyers and sellers.

    Down payments for homes costing HK$12 million or more will be increased from 40 percent and for those between HK$8 million and HK$12 million from 30 percent, Hong Kong Monetary Authority Chief Executive Norman Chan said Nov. 19. The maximum loan to value for non owner-occupied residential properties will be lowered to 50 percent, Chan said.

    More Curbs

    It was the second time the government raised down-payment requirements this year. On Aug. 13 it increased them for apartments costing HK$12 million or more and for investment properties to 40 percent, from 30 percent.

    Hong Kong Mortgage Corp., a government-backed home-loan insurer, capped at HK$6.8 million the value of a property that can be covered by mortgage insurance, it said Nov. 19.

    Hong Kong this year has also stopped offering residency to foreigners who buy property in the city and pledged to increase land supply to curb prices, which surpassed a 1997 peak on the back of record-low mortgage rates and an influx of buyers from China.

    The government “will closely monitor the market†and may introduce further measures if the latest curbs don’t stem property prices, Tsang wrote yesterday on his blog on the government’s website. The U.S. bond purchase program announced earlier this month has heightened the asset bubble risk in Hong Kong and it’s necessary for the government to adopt “pre- emptive†measures, Tsang wrote.

    ‘Extra Careful’

    “We have to be extra careful,†said Chow Suet-kuen, a retired civil servant who is looking to buy an investment apartment, a day after the government’s measures. “We’re not speculators, but the extra stamp duties may force us to hold onto the properties longer. We’ll probably wait a bit to see how the market reacts.â€

    Chow, who was at the Hung Hom district sales office for Cheung Kong’s Festival City Phase II project in Sha Tin district, said her family was a long-term investor and owned three other investment properties in the Kowloon area.

    The developer started selling 335 units at Festival City Phase II late on Nov. 19.

    Still, Fred Leung, a 40-year-old businessman looking to buy an apartment to live in at Festival City, said the stamp duty wouldn’t affect him, though he may put off purchasing.

    “I can see how the stamp duties would impact speculators, but that doesn’t really concern me,†said Leung a day after Tsang announced the measures. “I’m not sure if I’m going to make a decision now since I actually hope the developer will lower prices for the later units.â€

    To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

    To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.netoomberg.net

  2. Hope+Change

    Hope+Change Gold Member Gold Chaser

    Apr 6, 2010
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    He sounds like a speculator to me.

    Also: $1.4 million for an apartment? This market seems very similar to the real estate insanity that was going on in Florida and California before the bust.

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