Hong Kong Takes Drastic Action to Avert Property Slump

Pedestrians walk past an empty commercial property in Hong Kong. PHOTO: PETER PARKS/AGENCE FRANCE-PRESSE/GETTY IMAGES
Pedestrians walk past an empty commercial property in Hong Kong. PHOTO: PETER PARKS/AGENCE FRANCE-PRESSE/GETTY IMAGES

Summary

The city has scraped a series of property taxes in an effort to turn around a market that is often seen as a proxy for its beleaguered economy.

Hong Kong has taken a bold step to ease a real-estate slump, scrapping a series of property taxes in an effort to turn around a market that is often seen as a proxy for the city’s beleaguered economy.

The government has removed longstanding property taxes that were imposed on nonpermanent residents, those buying a second home, or people reselling a property within two years after buying, Financial Secretary Paul Chan said in his annual budget speech on Wednesday.

The move is an attempt to revive a property market that is still one of the most expensive in the world, but that has been badly shaken by social unrest, the fallout of the government’s strict approach to containing Covid-19 and the slowdown of China’s economy. Hong Kong’s high interest rates, which track that of the U.S. due to its currency peg, have increased the pressure.

The decision to ease the tax burden could encourage more buying from people in mainland China, who have been a driving force in Hong Kong’s property market for years. Chinese tycoons, squeezed by problems at home, have in some cases become forced sellers of Hong Kong real estate—dealing major damage to the luxury segment.

Hong Kong’s superluxury homes have lost more than a quarter of their value since the middle of 2022.

The additional taxes were introduced in a series of announcements starting in 2010, when the government was focused on cooling down soaring home prices that had made Hong Kong one of the world’s least affordable property markets. They are all in the form of stamp duty, a tax imposed on property sales.

“The relevant measures are no longer necessary amidst the current economic and market conditions," Chan said.

Hong Kong’s authorities had already relaxed rules last year to help revive the market, allowing home buyers to pay less upfront when buying certain properties, and cutting by half the taxes for those buying a second property and for home purchases by foreigners. By the end of 2023, the price index for private homes reached a seven-year low, according to Hong Kong’s Rating and Valuation Department.

The city’s monetary authority relaxed mortgage rules further on Wednesday, allowing potential buyers to borrow more for homes valued at around $4 million.

The shares of Hong Kong’s property developers jumped after the announcement, defying a selloff in the wider market. New World Development, Sun Hung Kai Properties and Henderson Land Development were higher in afternoon trading, clawing back some of their losses from a slide in their stock prices this year.

The city’s budget deficit will widen to about $13 billion in the coming fiscal year, which starts on April 1. That is larger than expected, Chan said. Revenues from land sales and leases, an important source of government income, will fall to about $2.5 billion, about $8.4 billion lower than the original estimate and far lower than the previous year, according to Chan.

The sweeping property measures are part of broader plans by Hong Kong’s government to prop up the city amid competition from Singapore and elsewhere. Stringent pandemic controls and anxieties about Beijing’s political crackdown led to an exodus of local residents and foreigners from the Asian financial center.

But tens of thousands of Chinese nationals have arrived in the past year, the result of Hong Kong rolling out new visa rules aimed at luring talent in 2022.

The government on Wednesday vowed to attract more talent to the city from mainland China and overseas and provide services to help them settle. It also earmarked the equivalent of more than $128 million for tourism in the coming year to lure more high-spending visitors to spend the night, the budget said.

Write to Elaine Yu at elaine.yu@wsj.com

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