Measures to cool down residential property market
In order to cool down the residential property market, the Government raised in November last year the ad valorem stamp duty (“AVD”) chargeable on residential property transactions across the board to a flat rate of 15 per cent. However, Hong Kong permanent residents who do not own any other residential property at the time of acquiring the residential property concerned (“first-time home buyers”) are not affected, and they are still subject to the lower AVD rates only. According to the Half-yearly Economic Report 2017 published by the Government in August this year, the overall residential property prices in June this year were 94 per cent higher than those at the 1997 peak, and people’s housing affordability ratio (i.e. home purchase affordability rate) worsened to 67 per cent in the second quarter of this year, which was significantly higher than the long-term average of 45 per cent over the past 20 years. In this connection, will the Government inform this Council:
(1) whether it has assessed the effectiveness of the aforesaid measure since its implementation; if so, of the outcome; if not, the reasons for that;
(2) as the Financial Secretary pointed out in his blog in April this year that if persons who had already owned a residential property acquired residential properties under the names of those who did not own any residential property (commonly known as “using other peoples’ identities to buy flats”) in order to reduce the amount of stamp duty payable, those using others’ identities and those allowing other people to use their identities might have committed the criminal offences of tax evasion or making false statements, and that he had instructed the Financial Services and the Treasury Bureau as well as the Inland Revenue Department to scrutinize the relevant cases strictly, of the number of suspicious cases into which the authorities are conducting or will conduct investigations, and the number of cases in respect of which the authorities are contemplating the institution of prosecutions at present;
(3) regarding cases involving first-time home purchases by persons under the age of 23 in the first nine months of this year, (i) of the percentage of such cases in the total number of first-time home purchases in the same period, (ii) whether it knows the average percentage of down payments in property prices for such cases, and (iii) whether it has assessed if the average percentage of the monthly incomes of mortgage loan borrowers spent on making mortgage repayments in such cases is at a healthy level; and
(4) as the Hong Kong Monetary Authority has pointed out in its Half-Yearly Monetary and Financial Stability Report released last month that the phenomenon of young homebuyers receiving support from parents for home purchases (commonly known as “home purchase hinges on father’s deed”) has become more prevalent, whether the Government will examine the adverse impacts of this phenomenon on the mortgage-to-family income ratio?
In the face of the overheated property market in recent years, the Government introduced several rounds of demand-side management measures, including the Special Stamp Duty (SSD), Buyer’s Stamp Duty (BSD), Doubled ad valorem Stamp Duty (DSD), and New Residential Stamp Duty (NRSD), so as to maintain the healthy and stable development of the private property market by combating short-term speculative activities, curbing external demand and reducing investment demand. To prevent local investors from avoiding payment of NRSD through acquiring multiple residential properties under a single instrument, the Government announced the tightening of the major exemption arrangement provided for Hong Kong permanent residents (HKPRs) under the NRSD regime with effect from April 12, 2017. Having consulted the Financial Services and the Treasury Bureau, the Inland Revenue Department (IRD) and the Hong Kong Monetary Authority (HKMA), I set out my reply to various parts of the question raised by the Hon CHAN Chun-ying as follows –
(1) The Government introduced NRSD in November 2016. NRSD remains eminently effective in reducing investment demand. According to statistics of IRD, residential property transactions subject to DSD/NRSD accounted for about 11 per cent of total transactions from December 2016 to September 2017, which was substantially lower than the 26 per cent before the introduction of NRSD (i.e. from January to November 2016). During the same period, among residential property transactions where buyers are HKPRs, about 93 per cent of the cases involved buyers who did not own any other residential property in Hong Kong at the time of acquisition, which was significantly higher than the 75 per cent before the introduction of NRSD (i.e. from January to November 2016).
As for transactions involving acquisition of multiple residential properties under a single instrument, the ratio of these transactions to the total transactions has fallen from about 2.5 per cent and 2.7 per cent in March and April 2017 respectively to 0.2 per cent in September. This illustrates that the tightened exemption arrangement has helped reduce such transactions.
Although property prices remain high, the pace of increase in the past few months has slowed down. The monthly increase in September and October 2016 (i.e. before the introduction of NRSD) was about 3.1 per cent and 2.7 per cent respectively, whereas the monthly increase in July and August 2017 was about 0.3 per cent and 0.4 per cent. The Government will remain vigilant, and continue to closely monitor developments in the property market and the evolving external environment.
(2) When applying for exemption from BSD or stamping at the lower ad valorem stamp duty (AVD) rates at Scale 2, residential property buyers have to submit to IRD a statutory declaration made by the virtue of the Oaths and Declarations Ordinance (Cap.11) to confirm that they have fulfilled the prescribed exemption conditions under the Stamp Duty Ordinance (Cap.117), including that they are acting on their own behalf when acquiring the residential property concerned. A buyer who wilfully makes a false statement in the statutory declaration commits the relevant criminal offence under the Crimes Ordinance (Cap.200), and shall be liable on conviction to imprisonment for two years and to a fine. Moreover, according to the Stamp Duty Ordinance, if IRD has found that the buyer’s declaration is untrue, the buyer will be liable for paying the difference in stamp duty payable. Any person who practises fraudulent device with intent to defraud the Government of any stamp duty commits an offence, which shall be liable to a fine at level 6 (i.e. $100,000) and to imprisonment for one year.
Acquiring properties under the names of other persons in order to alleviate the tax burden is illegal, and may give rise to future disputes on the title of the properties concerned. IRD has been closely monitoring the situation and has taken follow-up actions on individual cases.
(3) Since it is not necessary for buyers to provide age information when presenting instruments of residential property acquisitions to IRD for stamping, IRD is unable to provide breakdown of transactions by age of buyers.
(4) HKMA is aware of the increasing trend of parents providing support to their children in purchasing homes. If such support is from parents’ savings, it would not impact on the risk of the banking sector. However, if parents provide down payments for their children through the proceeds of re-mortgages or top-up mortgages of their existing properties from banks, or even act as guarantors for their children’s applications for mortgage loans, the risk of the banking sector would increase. The current supervisory guidelines of HKMA for mortgage lending include requirements for banks to strengthen their relevant risk management system, including requirements on multiple mortgages as well as prudent loan-to-value ratio limits for net worth-based borrowing. HKMA will continue to monitor the market situation closely, and will introduce suitable measures when necessary to ensure that the relevant risks are properly managed by banks.