Hong Kong Must Re-Think Property Policy; Price Curbs Aren't Working - RICS

Tom Burroughes

14 June 2013

Moves by the Hong Kong administration to curb red-hot property prices by doubling stamp duty and imposing a tax on buyers should be reviewed, as they discourage foreign investors from entering the commercial sector, according to the Royal Institution of Chartered Surveyors.

To highlight the strong pace of price growth in Hong Kong, figures for the first quarter of 2013 from Knight Frank, the real estate advisors, showed that Hong Kong recorded the largest rise on an annual basis while prices in China rose the most on a quarterly basis . Globally, house prices rose 6.6 per cent in the year to March. “Mainstream property prices in Hong Kong and China look to be flouting the efforts of policymakers to cool their property markets; both recorded price rises in the first quarter despite a raft of measures to kerb escalating prices,” Knight Frank said.

And RICS is concerned that policymakers’ methods are not working and may even aggravate the situation.

“RICS is of the opinion that the policies should be reviewed as they undermine Hong Kong's global competitiveness,” the organisation, which represents a large chunk of the region’s property sector, said.

“Many institutional investors regard Hong Kong's corporate real estate as an attractive long-term investment tool, and many multi-national companies often choose Hong Kong as their entry point into the Asian and mainland Chinese markets,” it said.

The organisation argued that the buyer’s stamp duty sends out a “negative signal” to overseas investors and will hit the jurisdiction’s competitiveness.

“Hong Kong's CBD is already one of the most expensive office markets in the world. Many multinational corporations will also look to purchase their own premises for staff accommodation. If property prices and rental levels are driven too high, Hong Kong may stand to lose its position as the city of choice for MNC's and investors looking to find opportunity in Asia,” it said.

“The doubling of stamp duty effectively prevents overseas investors from entering Hong Kong's commercial real estate market. As less overseas investors and MNC's come to Hong Kong, the only possible outcome is that prices will inflate even faster. Without sufficient rental competition, rental price levels are unlikely to fall to a satisfactory level, and MNCs will become discouraged from starting businesses in Hong Kong,” it said.

“RICS has made clear that the government has access to useful supply-side tools that can combat high purchase and rental prices of Hong Kong's commercial properties. While the government is now acting to increase home supply, RICS suggests that the government pay closer attention to the supply of commercial properties and formulate policies that carefully consider the importance of Hong Kong's international competitiveness,” it said.

As a short-term measure, RICS said they government should consider introducing a form of exemption to non-speculative acquisitions of non-residential property, or abolishing buyer’s stamp duty for commercial properties.