Hong Kong's Extension of Property Stamp Duty Rebate Not Performing Well

First-time homebuyers still accounting for up to 90% of home sales in Hong Kong

Global property consultant JLL is reporting this month the extended stamp duty rebate window has failed to help home upgraders in Hong Kong.

The monthly average of residential property transactions involving the 15% stamp duty, as a proxy for upgrading cases, was 663 between February and April 2018, largely similar to the monthly average of 659 cases recorded between December 2016 and January 2018.

In January, the Government extended the time limit for home upgraders to claim a stamp duty rebate upon disposal of their original property from six months to 12 months after conveyance of the new property.

Figures from the Inland Revenue Department showed the monthly average upgrading cases were similar to the monthly average recorded before the government extended the rebate window and after the stamp duty increase in November 2016. During the two years leading up to the stamp duty hike announcement, the number of residential transactions involving Double Stamp Duty payments averaged 1,454 per month, more than double the current level of upgrading activity being recorded.

From this, it can be seen that the hefty 15% stamp duty payable at the onset had effectively put a break on upgrading activity in the market.

Meanwhile, the market continues to be flooded by first-time homebuyer purchases. In the year-to-date through April, transactions involving first-time buyers averaged 4,728 per month, higher than the monthly average of 4,458 and 3,232 recorded in 2017 and 2016, respectively.

Henry Mok, Regional Director of Capital Market at JLL said, "The biggest challenge for home upgraders are the outright costs associated with buying a flat, including the 15% stamp duty as well as tightened mortgage conditions. For buying a two-bedroom flat costing over HKD 10 million, the buyer would require a down payment of at least HKD 5 million, plus the stamp duty payment and other costs amounting to another HKD 1 million. The outright costs and payment schedule, considered as major to the buyers, remain unchanged, despite extension of the stamp duty rebate window extension.

Ingrid Cheh, Associate Director of Research at JLL also commented, "Unless the Government further facilitates the ease of upgrading such as by using phased payments of the stamp duty, the broken chain in upward mobility of homeowners limits the number of flats released onto the secondary market. Against fewer buying options in the market, developers are given the upper hand in pushing prices further up in the primary market, against strong pent-up demand among first-time homebuyers, now accounting for 90% of all residential purchases."