Property analysts gave mixed reviews to Hong Kong leader John Lee’s maiden policy address, praising a lowered threshold for compulsory sale applications but voicing disappointment that a deferred stamp duty refund for foreign homebuyers would have little impact.
In the Wednesday speech, the city’s chief executive proposed cutting the compulsory sale application threshold for private buildings aged 50 years or older from 80 percent of the ownership to 70 percent, with an added reduction to 60 percent for buildings 70 years or older.
Lee, who succeeded Carrie Lam in July, said the compulsory sale adjustment would “speed up the consolidation of property interests to facilitate urban renewal of old areas”, a reform likely to sit well with site-hungry builders.
“We will also relax the requirements on compulsory sale applications covering abutting lots, streamline the legal procedures for compulsory sale, and set up a dedicated office to provide additional support to affected minority owners,” he said.
Dorothy Chow, executive director for valuation and advisory services in Asia at Colliers Hong Kong, said the lower threshold for compulsory sale would help expedite urban renewal and improve building safety and the built environment.
“Currently there are more than 8,000 buildings of age more than 50 years in Hong Kong, and the number is growing by 600 buildings per year,” Chow said. “The proposed amendment of the ordinance to facilitate combined lot redevelopment would promote more comprehensive developments as contrasted to those piecemeal redevelopment projects.”
JLL’s Alkan Au offered a more cautious take, pointing to the big-picture concerns that have shadowed the property market in the struggling Asian financial hub.
“The government has lowered the compulsory sale threshold to 70 percent, which is lower than the 80 percent ownership requirement in the other markets in Asia such as Taipei and Singapore,” said Au, the agency’s senior director of valuation advisory in Hong Kong. “However, the residential market has entered the down cycle. Developers need to afford higher interest rates and investment risk for acquiring old buildings for redevelopment in the fact of interest rate hikes and weakening economy.”
He suggested that a more potent measure would be to exempt firms from paying the buyer’s stamp duty for acquiring old buildings for redevelopment.
Tax Break Falls Flat
Keen to stanch a brain drain that has seen talent flee to Singapore and elsewhere, Lee pledged to let eligible foreigners apply for a refund of the extra stamp duty paid for purchasing residential property in Hong Kong — but only after they become permanent residents.
Joseph Tsang, chairman of JLL in Hong Kong, dismissed the adjustment as “too soft” to have the desired effect on the housing market.
“Mainland and overseas talents must wait seven years to receive a refund for the extra stamp duty when they purchase residential flats,” Tsang said. “The extra stamp duty is a heavy tax on buyers no matter how much of the house they have purchased. The overall residential market will not benefit from this relaxation.”
While acknowledging that the measure could help attract foreign talent, Cushman & Wakefield research head Rosanna Tang agreed that the long waiting period and upfront tax hit were obstacles that potentially could be overcome by allowing banks to provide stamp duty loans for foreign talents’ first home purchase.
“This type of buyer only accounts for a small portion of the residential market, and we do not expect such policy relaxation will boost property prices,” Tang said.