Hong Kong Property Developers’ Shares Lose Ground

on Oct 29, 2012

Property shares plunged in Hong Kong as the city imposed its first property tax on overseas and corporate buyers in an attempt to offset a housing bubble.

**15% Property Tax**
To try and cool down its overheating property market, the government of Hong Kong has introduced a transaction tax of 15 percent on non-permanent residents, as well as corporate purchasing of residential property. Short-term speculation will also be reduced through an increase in the stamp duty on the sale of property held by any owner for less than three years.

The latest tax is preceded by two previous rounds of measures meant to deal with soaring housing prices, which have already surpassed historical highs hit in 1997. These measures largely focused on taxing an early resale and rationing mortgage availability but they were never expected to make much of a difference as they didn’t target one of the biggest sources of buying – wealthy mainland Chinese who diversify their holdings in Hong Kong’s tax haven.

Some analysts are concerned that the new tax might have been implemented too late as the government has been warning of escalating property prices for three years now but until last Friday failed to impose any real limitations on overseas purchases.
!m[Government Finally Moves against Rising House Prices by Introducing New Property Taxes on Foreign Buyers](/uploads/story/662/thumbs/pic1_inline.png)When the 1997 bubble burst, prices fell more than 70 percent and Hong Kong entered a decade-long period of deflation. According to research by property consultancy firm Knight Frank, Hong Kong’s average home price is 17.6 times the median household income, making the city’s housing market the least affordable in the world. The increase in property prices, which rose by more than 20 percent in this year alone, is considered to have been fuelled by the government’s failure to provide enough land for housing.

Anthony Cheung, the secretary for transport and housing, warned on Monday that a tax on overseas buyers might be introduced in the commercial property sector as well if there were signs that it is overly targeted by speculators. The government’s actions mark a clear shift from the well-established Hong Kong’s laisser-faire tradition.
**Property Developers Bare Heavy Losses**

Bloomberg reported that the six richest property developers in Hong Kong lost a combined $2.2 billion (£1.37 billion) in net worth as shares in their companies plunged after the market reacted to the announcement of the newly imposed tax.
Asia’s wealthiest man, Li Ka-shing, lost about $748 million (£466 million) of his net worth, which now stands at $26.3 billion (£16.37 billion). His losses were the result of a 4.7 percent tumble of shares of Cheung Kong Holdings (HKG:0001).
Other property development companies, which suffered losses in today’s trading session, are Sun Hung Kai Properties (HKG:0016 – 5.1 percent), Henderson Land Development (HKG:0012-6.4 percent) and Sino Land (HKG:0083-6.4 percent), while Midland Holdings (HKG:1200), the territory’s largest real estate agency, saw its shares fall 14.5 percent.
“It’s time to sell” property stocks, Barclays’ analyst Andrew Lawrence wrote in an Oct. 27 report. “The government has finally become serious about demand-side measures.”
The Hong Kong’s benchmark index Hang Seng retreated 0.2 percent, while the property sub-index decreased by 3.7 percent.