Financial Secretary John Tsang has announced further measures to curb short-term property speculation, reduce the risk of asset bubbles forming, and ensure the healthy development of the property market.
They include introducing a special stamp duty on residential properties on top of the current ad valorem property transaction stamp duty, and disallowing deferred payment of stamp duty, including special stamp duty, for residential property transactions of all values.
The Government will table the amendments at the Legislative Council as soon as possible.
Speaking at a press conference this afternoon, Mr Tsang said the local property market has become increasingly exuberant due to global financial conditions.
"With abundant liquidity worldwide and persistently low, in fact, ultra-low interest rates, there is a huge amount of hot money flooding into our region, including Hong Kong. This has led to hefty increases in asset prices and overheated speculative activities. There is heightened risk of property bubbles forming."
Special stamp duty
Residential properties bought from tomorrow – either by a person or a company, listed or unlisted, and regardless of where it is incorporated – and resold within 24 months will be subject to the proposed special stamp duty payable by the buyer and seller.
The special stamp duty payable will be calculated based on the consideration for the resale transaction at the following regressive rates for different holding periods:
* 15% if the property is held for six months or less;
* 10% if the property is held for more than six months but for 12 months or less; and,
* 5% if the property is held for more than 12 months but for 24 months or less.
Before the requisite legislative amendments take effect, the Inland Revenue Department will record all residential property transactions during the interim period - from tomorrow to the date legislative amendments take effect - to identify the parties liable for special stamp duty. Demand notes on special stamp duty will then be issued after the new legislation is enacted.
The Monetary Authority will also introduce further measures to enhance risk management in mortgage lending by banks in Hong Kong, Mr Tsang added.
"This will, among other things, include guidelines to banks to lower further the loan-to-value ratio for mortgages. This will help promote prudent lending and reduce the excess liquidity in our market."
Risk management measures
Monetary Authority Chief Executive Norman Chan said a circular has been issued to banks requiring them to implement measures to strengthen risk management in residential mortgage lending business. They include:
* lowering the maximum loan-to-value ratio for residential properties with a value at $12 million or above from 60% to 50%;
* lowering the maximum loan-to-value ratio for residential properties with a value at or above $8 million and below $12 million from 70% to 60%, but the maximum loan amount will be capped at $6 million;
* maintaining the maximum loan-to-value ratio for residential properties with a value below $8 million at 70%, but the maximum loan amount will be capped at $4.8 million; and,
* lowering the maximum loan-to-value ratio for all non-owner-occupied residential properties, properties held by a company and industrial and commercial properties to 50%, regardless of property values.
The above measures take effect immediately, but loan applications in respect of transactions where a provisional sale-and-purchase agreement for the property was signed on or before November 19 will not be affected.
The Mortgage Corporation will introduce a cap of $6.8 million on the value of property that can be covered under the Mortgage Insurance Programme for all products. As a result, for mortgage loans with Mortgage Insurance Programme cover starting from the 70% loan-to-value threshold, the maximum loan amount will be reduced from $7.2 million to $6.12 million.
For mortgage loans with the Mortgage Insurance Programme cover starting from the 60% loan-to-value threshold, the maximum loan amount will remain at $6 million.
The revision will apply to loan-to-value applications with provisional sale and purchase agreements signed on or after November 20. For homebuyers who have executed the provisional sale and purchase agreement before that date, their mortgage loan applications can be submitted by Mortgage Insurance Programme participating banks for processing in accordance with the existing scope and criteria of the Mortgage Insurance Programme.
Market analysis
Mr Tsang said external factors, coupled with a low supply of flats, have prompted local property prices to surge over the past two years. Overall, prices rose 15% in the first nine months of the year. Compared with the ebb in 2008, prices have surged by 47%. Property transactions in the first 10 months of this year grew 17% compared with the same period last year.
"The rate of increase in the number of transactions in small and medium sized units is even greater than those in the luxury market. This suggests that the exuberance has begun to spread to the mass market."
Short-term resale transactions are increasing rapidly, he added. In the first nine months of this year, the number of resales within 12 months of acquisition increased by 114% compared to the same period last year.
"These initiatives are extraordinary measures under exceptional circumstances. The effects of quantitative easing combined with other abnormal influences on our property market are far from over. We will introduce further measures if circumstances so warrant in the future."
