Government Making A Statement
With SSD And BSD
Real Estate Analysis Limited
2000 ft2 Detached house, 3 Bed, 2 baths, garage, front and back yard, all
for US$225K, No SSD or BSD
The Hong Kong Government has just announced 2 more measures to combat the
fast rising house price, namely an extended version of the SSD (Special
Stamp Duty) and a new BSD (Buyer¡¦s Stamp Duty) on top of the existing stamp
duties already in place. For details, refer to the announcement:
Briefly, buyers of Hong Kong real estate are subject to stamp duties. The
current rates can be read here:
The SSD, separate and different from the usual stamp duties above which are
payable upon acquisition, is a tax imposed on a seller of residential
property IF the property has not been held for a minimum period by the
seller and the shorter the holding period (within the minimum period), the
higher the SSD percentage rates. The extended version increases not only the
SSD percentage rates but also the minimum holding period from 2 to 3 years.
As such, for a seller who has held the property 3 or more years prior to
resale, he or she would not need to pay the SSD.
The BSD is a different animal. It is a newly created tax for non-Hong
Kong-Permanent-Resident buyers and incorporated buyers i.e. buyers using a
company to acquire and take title of the residential property. No
distinction is made between local or overseas companies in this regard, i.e.
BSD applies as long as a company entity is used by the buyer in the
acquisition. The rate is a rather hefty 15% on top of the usual stamp duties
to be paid. Yes, that¡¦s right, out-of-town buyers and all companies are to
pay 15% plus in stamp duty upfront when purchasing residential properties in
Hong Kong¡Kunless some smart lawyers could come up with some legitimate
schemes to go around the hurdle, assuming this being feasible.
Apparently these measures had caught some of the industry people off guard
and while there are supporters, there are also plenty of critics. Comments
range from saying the measures will cause potentially big price drops thus
exposing homeowners again to negative equity concerns all the way to
betraying the free and open market economic principles.
Your humble author feels that these latest house price combat measures are
not incremental to the measures dished out before i.e. this is not a 1, 2,
3, then 4, 5, 6 sequence. It is more like 1, 2, 3, then 10, 11, 12 sequence.
Also, the impact from the extended SSD is likely to be less than the new
BSD. The SSD does not apply to homeowners who sell having held the property
for 3 years or more. As such, it affects mostly short term investors and
However, the BSD requires 15% plus based on the purchase price upfront and
differentiates short and long term owners-investors not. As quite a
proportion of pricey properties tend to be registered in company names, not
to mention the 20% transactions from out-of-town (mostly Mainland Chinese)
buyers, the BSD is expected to dampen investment interest and thus exert
some downward pressure on prices.
Given that the measures are created to combat the effects of QE3, the broad
question is thus whether these latest measures will be sufficient to offset
whatever effects (deemed undesirable presumably) from QE3. If latest
measures > QE3, then yes, house price will be controlled; if latest measures
< QE3, house price will still trend upwards. It remains to be seen which
would win in the long run, yet it is felt these latest measures are
relatively more on par and may have a reasonable chance to counter QE3.
Furthermore, it seems the government is trying to send a signal to the
market that they really mean business, and if somehow house prices are not
thus controlled, more measures are to come.
Not being economists or financiers, it is somehow felt the measures are
meant to protect the financial system and its integrity more than to enhance
housing affordability. And this in turn relates to the contemplation that in
the event of a Hong Kong bubble burst caused by real estate or what have
you, thus leading to some economic crisis, there could be fewer resources
for and sources of help, given the Mainland economy appears to be slowing
down and in need of some restructuring itself.
Reminds your humble author of some WWII movies in which there could be a
battle line saying: hold at all costs.
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