The Hong Kong Property Market

The Hong Kong property market is almost always in the news. Since the handover of Hong Kong to China in 1997, property has become the new buzzword in Hong Kong.

Desirable Destination

Hong Kong is one of the world’s leading financial capitals. A bustling hub for trade and commerce and the primary gateway to China, the city is lauded for its free market economy, which attracts the brightest talents from around the globe.

Many of the folk, who arrive to work in Hong Kong, are soon seduced by city’s infinite charms such as its unique topography, cosmopolitan vibe and fast paced life. Such is Hong Kong’s enduring charm that most people never want to leave. While gaining permanent residency by living in Hong Kong for seven years at a stretch is quite easy, buying a home is more of a challenge, given that Hong Kong hosts one of the world’s priciest real estate markets.

Historical Trends

Property market statistics on the website of the Hong Kong’s government’s Ratings and Valuation Department reveal that prices of homes in Hong Kong have risen incessantly since the turn of the century.

Estimates indicate that Hong Kong’s housing price index rose 20% during the first nine months of 2012, soaring up to 107% over the 2008 trough and catapulting 26% above the 1996 peak.The rising prices resulted in a steep decline in the affordability ratio (mortgage to income ratio, which fell from 31.7% in late 2008 to under 50% in 2012.

These runaway prices were attributed to various factors as growing foreign demand, the availability of easy credit and a low interest rate regime, which came into effect after the global financial crisis in 2008.

Property cooling measures

The speed of prices rises and decline in affordability of a basic necessity such as housing caused much concern. The Hong Kong government then responded by introducing a slew of extraordinary measures to temper the exuberant housing market, in an effort to curb speculative interests and ensure the healthy and stable development of the housing sector.

Special Stamp Duty

The first such cooling measure was introduced in November 2010, in the form of a Special Stamp Duty (SSD) on the sale of residential properties. This SSD was to be paid in addition to the ad valorem stamp duty (AVD). SSD became applicable on any sale transaction of a residential property bought and sold within 24 months after November 20, 2010.

The rates of SSD payable further varied according to the period for which the property was held. SSD waslevied at 15% if the property was held less than 6 months, 10% if the property had been held less than a year but more than 6 months and at 5% if the property had been held for more than 12 months but less than 24 months.

Buyers Stamp Duty

The imposition of the SSD,failed to have the desired impact so another round of measures was introduced on 27th October 2012. These measures introduced a Buyers Stamp Duty levied at the rate of 15% in addition to the AVD and the SSD, on the acquisition of residential properties by non-permanent residents of Hong Kong. This tax was also applicable on companies no matter where they were incorporated.

The second round of measures also adjusted the rates of the applicable SSD so that it amounted to 20% if the residential property had been held for less than 6 months, 15% if the residential property had been held for more than 6 months but less than 12 months and 10% if the said property had been held for more than a year but less than 36 months.

Changes in AVD

The imposition of SSD and BSD levies brought the runaway residential property market in Hong Kong to a screeching halt. However, fearing that speculative tendencies would begin to target the commercial property market, the government then went on to change the rates for AVD.  From February 23,2013 the AVD rate for property transactions valued HK$2 million and more was raised from HK $100 to 1.5% of the value of the transaction. The highest AVD was doubled from 4.25% to 8.5% and it came to be known as Double Stamp Duty(DSD). The new AVD rates do have some concessions for permanent residents of Hong Kong.

These measures had the desired impact and real-estate transactions fell to the lowest point in 23 years in 2013. Government data indicates that real-estate transactions registered a decline of 56% in 2013 as compared to the previous year. As buyers have retreated, price rises have also slowed and the Hong Kong property market is currently on ice so as to speak.

An era of discounts and rebates

The Hong Kong government’s property cooling measures are not going to be repealed as yet according to information received. However, if you are a Hong Kong permanent resident and are desirous of buying a home or even upgrading your present home, you may be in luck.

In order to combat the sluggish market conditions and to stimulate demand, Hong Kong’s cash rich property developers have begun to offer attractive incentives and rebates.

Sun Hung Kai Properties, one of the biggest names on Hong Kong’s property scene, reduced prices at its Riva Project in the Yuen Long area of the as New Territories by an average of 40% in April 2014. This reduction represents a steep drop compared with the launch prices announced in March 2013.

The company then went to offer similar rebates for its Mount One project, a 144 unit- development in the suburb of Fanling. The company is currently offering brand new units at 22% discount compared to other almost new units located in the area. Discounts for buyers paying with cash and rebates and help for buyers with mortgages are some of the other incentives offered.

Other prominent developers have followed suit; Cheung Kong (Holdings) Ltd has gone on to offer price discounts along with rebates on double stamp duties to entice customers for its Diva project located at North Point. Such tactics have also been adopted by developers like the Nan Fung group (for the Winfield at Happy Valley) and Sino Land Corporation (at the Avenue at Wan Chai).

The Hong Kong government’s property cooling measures seem to have affected the luxury market segment the most. Thus, these discounts and rebates are currently being offered by developers primarily for new luxury properties.

However, analysts believe that the era of discounting is here to stay for now. Discounts and rebates will continue to range from 25% to 35%, and as new homes continue to come on the market, these discounts are expected to spill over from the primary market to the secondary market. All this bodes well for buyers.

A time to buy

These developer-offered discounts and rebates seem to be working as buyers slowly seem to be returning to the market as estimates indicate that the sale transactions have cautiously started to pick up.

So, if you belong the group of buyers who has been and watching the dramatically evolving real estate scenario, you may want to reach out to us, at Engel &Völkers.

Our team of experienced, knowledgeable and professional agents has a finger on the pulse of Hong Kong’s property market. We can provide you much-needed guidance to make that all-important real estate decision.

Be it a buying decision or even finding a suitable rental, the agents at Engel &Völkers are on hand to listen, understand and respond to your needs and preferences.

Moreover, most of our agents are multilingual and speak a variety of regional and international languages. A qualification, bound to add your comfort and enhance your confidence as you make that life altering decision.

So give us a call today!  At Engel &Völkers we speak your language! 

Posted in Residential.