Hong Kong Cuts Tax for First-Time Buyers of Smaller Homes in Bid to Boost Market

Hong Kong’s finance chief delivered the city’s budget in a speech on Wednesday, with the planning document introducing tax cuts for first-time buyers of small homes as the government tries to jump-start sales in the world’s least affordable housing market.

Financial Secretary Paul Chan announced the lowering of the ad valorem stamp duty on purchases of up to HK$9 million ($1.1 million), but the city otherwise left its longtime cooling measures intact. The adjusted rates apply to first-time permanent resident buyers of residential and non-residential properties.

Chan said the changes would ease the burden on ordinary families seeking to buy residential properties, particularly small and medium-sized units.

“It is anticipated that this measure will benefit 37,000 buyers and cost the government approximately HK$1.9 billion per year,” he said in the budget address.

A Good Start, Not Enough

Chan offered the example of an HK$8 million home purchase in which the first-time buyer would save HK$60,000 in stamp duty under the new rate schedule. In a lower bracket, the buyer of a HK$4 million home would save HK$30,000.

Property consultancy Colliers, while recognising the government’s “good intentions”, said the impact on price level was insignificant with a less than 1 percent reduction in property value, yielding a limited impact on overall home prices.

“We think now is the right time to relax stamp duty on home purchases,” said Hannah Jeong, Colliers’ head of valuation and advisory services for Hong Kong. “The special stamp duties launched were intended to curb speculation. However, the main factors affecting property prices are usually interest rates, local economy and citizens’ purchasing power.”

Colliers said it hoped to see the government progressively relax the stamp duty after analysing the impact of the adjustments.

JLL reported last month that Hong Kong developers were sitting on an inventory of 79,000 unsold homes, which the consultancy estimates could require 5.4 years to sell down at the current rate of transactions.

While the reopening of the city’s borders has helped rekindle the market in recent weeks, at the end of last November developers had 20,579 homes pending presale consent approval. That amount marked a year-on-year increase of 29 percent and foreshadowed still greater oversupply in a market which saw prices drop by an average of more than 15 percent in 2022, according to official figures.

Nano Contradictions

JLL Hong Kong chairman Joseph Tsang said the main beneficiaries of the revised policy would be buyers of nano flats, as home purchases of up to HK$3 million are nearly exempt from stamp duty under the adjusted rates.

“The problem is that the supply of nano flats has dropped significantly and the measure contradicts the government’s intentions to encourage developers to build bigger flats,” Tsang said.

That view was amplified by Rita Wong, head of valuation and consulting for Greater China at CBRE, who noted that transactions of residential units for below HK$3 million accounted for less than 5 percent of total volume in 2022.