Hong Kong‘s Finance Minister Paul Chan announced the elimination of three significant property transaction taxes during his annual budget address on Wednesday, aiming to rejuvenate the city’s sluggish housing market.
Despite its status as one of the world’s least affordable housing markets, the finance hub witnessed a decline in home prices last year due to soaring interest rates and the economic slowdown in China.
Chan revealed Hong Kong’s prompt abandonment of three specific stamp duty categories, reversing regulations enforced more than a decade ago to suppress speculation, a trend partly propelled by buyers from mainland China.
“After prudent consideration of the overall current situation, we decide to cancel all demand-side management measures for residential properties with immediate effect,” Chan told the legislature.
The taxes that have been scrapped, as detailed in an AFP report on Wednesday, consist of stamp duties, formerly reaching rates as high as 15 percent, imposed on non-Hong Kong permanent resident property purchasers and individuals buying secondary homes.
“No Special Stamp Duty, Buyer’s Stamp Duty or New Residential Stamp Duty needs to be paid for any residential property transactions starting from today,” Chan said.
“We consider that the relevant measures are no longer necessary amidst the current economic and market conditions,” he said, noting that residential market sentiment became “very cautious” since the middle of last year.
Although Hong Kong had already implemented a stamp duty reduction last October to spur market activity, the impact was relatively lackluster. Flat prices witnessed a seven percent drop in 2023, and transactions declined by five percent, totaling around 43,000.
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Public finances have taken a hit from the sluggish housing market, as the Hong Kong government heavily relies on land sales for revenue, resulting in a mere HK$19.4 billion ($2.5 billion) generated last year.
Chan added that Hong Kong recorded a deficit of HK$102 billion in 2023-24, leading to a decrease in fiscal reserves to HK$733 billion, attributed to the “challenges posed by the epidemic and external environment.”
The finance chief noted that Hong Kong’s economy is anticipated to expand between 2.5 and 3.5 percent this year, with support from factors including the expected interest rate cut by the US Federal Reserve.
“Amid a complicated and ever-changing international environment… more strenuous efforts are required to strengthen momentum of our economic recovery,” Chan said.
Amidst a backdrop of prolonged pandemic measures and social upheaval, Hong Kong strives to restore its image as a global finance hub, grappling with critiques suggesting that Beijing’s ongoing political crackdown has spurred an outflow of talent and capital.
During his address on Wednesday, Chan announced a pledge of about HK$1 billion for tourism development, with a focus on financing “mega events” and arranging monthly fireworks and drone showcases over Victoria Harbour.
Visitor arrivals in Hong Kong totaled approximately 34 million last year, representing a substantial drop from the record highs of 65 million observed in 2018.
The Hong Kong Monetary Authority also relaxed mortgage rules on Wednesday, allowing homebuyers to borrow more, and eased an income-related stress test.
Louis Chan of Centaline Property Agency told AFP scrapping the property market curbs would bring “very positive impacts”.
“I expect the trading volume to surge by 60 to 70 per cent, with some even doubling… I expect the property price to go up by three to five per cent in the second quarter,” said Chan.
Polly Wan, a tax partner at Deloitte China, highlighted that the stamp duty cancellations were “welcome moves to help stabilize the property sector and support overall economic recovery.”
Terence Chong, an economist at the Chinese University of Hong Kong, contended that the effect of mortgage interest rates would outweigh the impact of tax cuts.
“It is the most important to create a healthily rising market because no matter how cheap a flat is, young people won’t put a major investment of their life in a depreciating asset,” Chong said.