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Tuesday, April 11, 2017, 23:13

Loophole in multiple-home purchases plugged

By Oswald Chan in Hong Kong

Loophole in multiple-home purchases plugged
A pedestrian walks past a building site next to high rise buildings in Hong Kong on March 12, 2016. Property prices in Hong Kong, famous for its sky-high rent and super-rich tycoons, have more than doubled in six years due to record low interest rates and a flood of wealthy buyers from mainland China. ( PHILIPPE LOPEZ / AFP)

Hong Kong has again moved to rein in the city’s runaway property market and curb speculation by plugging a legal loophole used by first-time homebuyers to avoid taxes on multiple flats bought in one go.

The latest measure – the second to be imposed in six months in an attempt to cool the red-hot market – stipulates that purchasers of multiple properties in a single transaction contract will have to pay a 15 percent stamp duty. It comes into effect on Wednesday.

The 15 percent stamp duty was imposed in November last year on all residential purchases by non-first-time buyers and those without permanent residence in the SAR, as local homes prices continued to go through the roof, fueled by robust overseas demand.

READ MORE: Home prices rise as buyers absorb cooling measures

However, the curbs have done little to cool demand so far, with developers offering attractive discounts and tax rebates, as well as up to 100 percent mortgage loans. Buyers have also found ways of circumventing the restrictions, with some snapping up several units at the same time to qualify for lower tax rates.

Prior to November’s announcement, multiple properties acquired under a single transaction accounted for 3.5 percent of all homes transactions in Hong Kong. After the measure came into force, the figure surged to 4.7 percent, with one contract involving seven properties at the most.

We have to suppress speculative, external and investment demand for Hong Kong properties to ensure that local residents have priority in buying their own homes

Leung Chun-ying, Hong Kong Chief Executive

The total number of properties bought under a single contact had risen drastically from 20 in January this year to 180 in March, according to government data.

Announcing the government’s move on Tuesday, Chief Executive Leung Chun-ying said: “It’s an asymmetrical market with investors pouring their cash into buying multiple properties for investment purposes, and developers hiking their prices in response to investors’ needs.”

"Local resident buyers are thus left with no choice, but forced to bow to the escalating prices in the market.”

ALSO READ: JP Morgan: Hong Kong home prices near peak as risks mount

Property prices have continued to set new records in Hong Kong – branded as the world’s least affordable homes market – according to Centaline Property’s Centa-City Leading Index. Even after the US Federal Reserve had raised interest rates, a move that presages higher mortgage rates, developers have seen brisk sales.

"We have to suppress speculative, external and investment demand for Hong Kong properties to ensure that local residents have priority in buying their own homes,” Leung said.

The potential supply of first-hand residential properties in Hong Kong is projected to reach 94,000 flats in the coming three years – a 45 percent rise since Leung took office in 2012 and also the highest figure since the government began compiling relevant data in 2005.

"Hong Kong homebuyers should take account the fact that the pace of US interest-rate hikes may rise faster than expected,” Financial Secretary Paul Chan Mo-po warned.

"Besides, the average number of flats to be completed annually will be around 20,000 over the next five years, and this will have an impact on the local transaction and rental market,” he said.

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