Hong Kong scraps property cooling measures to revive sluggish market

HONG KONG: Hong Kong has axed all property transaction taxes in a bid to revive the depressed housing market, Financial Secretary Paul Chan said in his annual budget speech on Wednesday (Feb 28).

The finance hub's economy was initially buoyed by China's post-pandemic reopening but recovery has since slowed and residential property prices are at a multi-year low.

Chan said Hong Kong would scrap three types of stamp duty with immediate effect, reversing measures introduced more than a decade ago to curb speculation and rein in sky-high property prices.

"After prudent consideration of the overall current situation, we decide to cancel all demand-side management measures for residential properties with immediate effect," Chan told the legislature.

The cancelled taxes include a stamp duty of 15 per cent of the property price imposed on buyers who are not Hong Kong permanent residents and 7.5 per cent on those purchasing a second home.

"No Special Stamp Duty, Buyer's Stamp Duty or New Residential Stamp Duty needs to be paid for any residential property transactions starting from today," Chan said.

"We consider that the relevant measures are no longer necessary amidst the current economic and market conditions."

Hong Kong's economy is expected to grow 2.5 per cent to 3.5 per cent this year, Chan said. The special administrative region expanded 3.2 per cent in 2023.

Hong Kong's housing prices, once among the most expensive in the world, have plunged 20 per cent since their 2021 peak, dragged down by fragile market sentiment and a rise in interest rates. Some analysts expect a further 10 per cent drop this year.

Hong Kong had already reduced stamp duty last October in a bid to revive the market, but the reception had been largely muted.

With Hong Kong's currency pegged to the greenback, the city has been further pressured by the Federal Reserve's campaign of rate hikes since March 2022, which squeezed property prices and domestic consumption.

Louis Chan of Centaline Property Agency told AFP scrapping stamp duty would bring "very positive impacts".

"I expect the trading volume to surge by 60 to 70 per cent, with some even doubling ... I expect the property price to go up by 3 to 5 per cent in the second quarter," said Chan.

"In order to save the economy, (Hong Kong) began to have its main door wide open but the question remains whether customers will come in, depending on whether Hong Kong is attractive enough and how high the investment return rate can be."

The government will also roll out more than HK$1 billion (US$127 million) in support measures for its beleaguered tourism industry, to help offset the impact from the struggling Chinese economy, which has resulted in fewer visitors from the mainland.

The city will stage more than 80 "mega-events" in the first half of the year to boost tourism, including a monthly fireworks and drone show at its famed Victoria Harbour.

Economic growth has also been hampered by geopolitical tensions between China and the United States, while capital flight turned the Hong Kong stock market into the worst-performing major index last year.