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Hong Kong targets stock, housing taxes to revive role as hub

Bloomberg
Bloomberg • 5 min read
Hong Kong targets stock, housing taxes to revive role as hub
Foreigners will now pay 15% levies on homes instead of 30%, while Hong Kong residents buying a second home will pay 7.5% in taxes. Photo: Bloomberg
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Hong Kong is slashing extra stamp duties for some homebuyers and reversing a pandemic-era increase in stock trade levies as officials seek to boost the beleaguered property sector and revive the city’s status as a financial hub. 

Chief Executive John Lee detailed the measures Wednesday during the second policy address of his tenure, including a highly anticipated move to cut taxes for homebuyers who aren’t from the city as well as residents who already own property — the first change to housing curbs in the decade since they were introduced.

Earlier in the address, he announced the city will lower the stock trade stamp duty to 0.10% from 0.13%, which the tax was raised to at the height of the pandemic in 2021. 

The easing measures come as Lee works to deliver effective support for Hong Kong, which is struggling to recover after removing years of pandemic curbs as China’s economic difficulties and increased geopolitical tensions take a toll. The property market is at the top of Lee’s list of concerns, as falling demand and rising borrowing costs drive existing home prices down to a six-year low. Developers and real estate agents had been calling for the removal of housing curbs to help that sector.

Boosting the city’s financial markets is a major task as well: IPOs have plummeted since 2021 and trading has slumped, raising questions about whether other regional finance hubs can effectively overtake Hong Kong’s position as a key international centre for commerce. 

Property Easing

See also: Retail investors pull record GBP1.8 bil from UK equity funds

The cuts to levies for non-resident buyers may help boost market interest among foreigners who the government considers key to the city’s financial success and economic revival. Under the changes, homebuyers on eligible talent visas aren’t required to pay extra duties unless they fail to become permanent residents.

Foreigners will now pay 15% levies on homes instead of 30%, while Hong Kong residents buying a second home will pay 7.5% in taxes, down from 15%. Along with halving those stamp duties, Lee said sellers would be able to offload properties without tax after holding them for two years, down from three years.

Along with the drop in the prices of existing homes, the market for new housing has also seen strain. There were 20,483 vacant properties in the third quarter — the most in almost two decades, data from Centaline show.

See also: UK economy expands by 0.4% in May, double the expected pace

Financial Secretary Paul Chan last month had hinted at a potential relaxation, saying conditions have changed from when the government introduced cooling measures in the early 2010s. Prices remain expensive by historical standards, however. 

Any rebound in buyer demand from the property moves is seen to be short-lived given high mortgage rates, according to analysts. Hong Kong’s property stocks, including New World Development Co. and Sino Land Co., surged following an earlier local media report about the cuts to taxes for residents buying second homes, though they later pared gains. 

Boosting Stocks

The lowering of stamp duties for stock trading also marks a much-anticipated reversal. Average daily equity trading on the city’s exchange fell 9% in the first nine months of 2023 from a year earlier. Total equity funds raised declined 67% in the period. Hong Kong’s measures also come after China cut in half its stamp duty on stock trades.

Since the duty was hiked in August 2021, government income from stock trading has surpassed even the revenue it raises from property sales, its traditional cash cow. Hong Kong has also become the most expensive exchange among developed markets in Asia Pacific, a study showed.

The government had earlier expressed reluctance about reversing its higher stamp duty. Before China’s reduction, Hong Kong government said it had found “no adverse effect on trading” from the stamp duty hike and said stock prices were the biggest driver of trading. 

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Reversing the tariff to levels before the 2021 raise will cut Hong Kong government’s revenue by HK$12.3 billion ($2.15 billion), or about 2% of revenue, according to an official estimate released in July. 

Depressed Economy

Officials have also been trying to sell Hong Kong’s attractiveness to a sceptical world through various publicity campaigns in order to revive its international image and lure visitors. The number of tourists visiting the city has yet to return to pre-Covid levels, while retail sales remain depressed. Economists have cut their forecasts for the city’s economic growth this year as the post-pandemic recovery remains sluggish.

Yet the government has also ramped up efforts to safeguard national security, even though protests have long been extinguished. In the summer, Lee put a bounty on eight pro-democracy activists living overseas, calling them “street rats” who will be hunted for life. The move triggered public criticism from Western governments including the US and UK.

During his policy address, Lee said the city must stay vigilant against possible street violence and rebellion through “soft resistance,” while watching out for anti-government movements from dissidents overseas. He also said the city would make laws to ban acts endangering national security, which he said would be more comprehensive than existing legislation.

Lee also announced measures to tackle the city’s plunging birth rate, which is contributing to a rapidly ageing society. He said Hong Kong will hand out a one-off cash bonus of HK$20,000 for each newborn of permanent city residents. That measure will take effect for three years and then be reviewed. 

Other key announcements from Lee’s policy address:

  • Hong Kong will make laws to ban acts endangering national security according to Article 23 of the Basic Law
    • Existing legislation already covers some of those acts, but Lee previously said the new laws would make it more comprehensive
  • Hong Kong will introduce a mechanism to attract overseas firms to re-domicile in the city, targeting those with a business focus in Asia Pacific
  • Government will study introducing private investors to support large urban development plans, such as the Northern Metropolis
  • Hong Kong will attract talent from Vietnam, Laos and Nepal, making it easier for people from there to get talent-related visas

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