Hong Kong property tax
Additionally, to discourage speculation, the government also raised special transaction taxes by up to 20% on properties sold within three years of their purchase. The old rule covered a two-year sale period. These additional taxes also will continue to apply to local and non-local property owners.
Foreigners are defined as non-permanent residents. The new rules also apply to local and non-local companies as buyers.
The new Hong Kong law follows Singapore's move in December 2011 when it imposed a 10% tax on residential property purchases by foreigners to stabilize the housing market.
Hong Kong operates with its own set of laws and institutions, including a separate currency, even though it is a legal part of China. One Hong Kong dollar equals $0.1290 US.
Property prices in Hong Kong have doubled over the past four years, largely due to historically low interest rates and strong foreign demand. According to some Hong Kong Realtors, prices are up 20% in the first nine months of this year, breaking a record reached in the 1997 property bubble.
At the same time, the city's economy shrank by 0.1% in the second quarter from the first three months. The government has forecast gross-domestic-product growth this year at 1% to 2%.
Mainland Chinese investors have been among the most aggressive speculators, buying up properties that would give them higher returns on re-sales. By some local brokerage estimates, they accounted for about 37% of the total value of newly built apartments sold in Hong Kong in the second quarter.
Hong Kong Financial Secretary John Tsang announced the new measure Oct. 26. The law became effective Saturday, Oct. 27. The bulk of real estate deals in Hong Kong are done on the weekend.
"This is an extraordinary measure introduced under exceptional circumstances, " Tsang said in his prepared statement.
Although some Hong Kong Realtors fear the new law will trigger home price drops of up to 10% in some sectors of the city, London-based Barclays disagreed. In its report today, Oct. 29, the bank forecast a drop in transaction volume but little or no price corrections over the short term.
Centaline Property Agency Ltd, the city's biggest realtor by market share, told the media Sunday residential property transactions in the city's 10 major private housing complexes fell 43% over the weekend from the previous week.
Ricacorp Properties, also a major Hong Kong brokerage, said its sales dropped by 46% immediately after the Oct. 26 announcement.
Hong Kong property stock prices also fell Monday. Henderson Land Development Co. Ltd dropped by 7%; Sun Hung Kai Properties Ltd. down 6%; and estate agent Midland Holding Ltd. down 16%.
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