Financial Secretary states adjustments are possible if market falters following removal of cooling measures, no need for vacancy tax yet

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Paul Chan

2nd March 2024 – (Hong Kong) Financial Secretary Paul Chan has announced the complete withdrawal of the property cooling measures in the new fiscal budget recently. This means that there will no longer be any additional stamp duties, including buyer’s stamp duty and new residential stamp duty, for all residential property transactions. However, there has been an early call for the withdrawal of these measures from the society.

Paul Chan stated during a radio program this morning that the decision to withdraw the cooling measures was based on the market inefficiencies and the absence of supply-demand imbalances that were present when the measures were introduced. He described the measures as no longer necessary and stated that the government will monitor the market response, taking into account high interest rates and geopolitical pressures. The implementation of these measures sends a clear message to the market, allowing it to operate freely and fostering stable development in the real estate market.

When asked about concerns regarding the difficulty of homeownership after the withdrawal of the cooling measures, and the potential impact on property prices if developers withhold units from the market, Chan explained that the government can adjust the measures if the market becomes inefficient or excessively heated. In extreme cases, a vacancy tax could be introduced. However, at present, there is no need for such a measure, and there are no rigid indicators for the introduction of a vacancy tax. The government will closely monitor the market situation.

Geopolitical influences affecting capital flows have led to pessimistic sentiments in the property and stock markets. In the new fiscal year, the government will only release one residential site in Sha Tin in the first quarter. It has emphasised that there is a potential supply of nearly 110,000 units of private residential housing over the next three to four years, which the market needs time to absorb. If necessary, the government can increase land supply at any time, emphasising the flexibility of land sales.

Regarding concerns about land auctions being unsuccessful, Chan pointed out that the property market operates in cycles, and it is expected that interest rates will decrease this year, which will elicit a response from investors. Regardless of market conditions, the government will continue to create land supply.

The budget proposal suggests implementing a two-tier tax system for salaries and personal income tax, which has been criticised for targeting the wealthy. However, Chan stated that even after the adjustment, Hong Kong’s tax system will remain simple and have low tax rates, making it competitive compared to other places. He expressed no worries about the impact on Hong Kong’s image, as many people are willing to work in Hong Kong due to its low tax rates, ease of saving money, and diverse and open lifestyle.

Looking to the future, Chan mentioned that geopolitical factors have affected capital flows, leading to volatility in the property and stock markets. However, with expectations of continued economic growth and lower interest rates in Hong Kong this year, he believes the investment market will respond accordingly. In the new fiscal year, the government will only release one residential site in Sha Tin in the first quarter, as the market needs time to absorb the supply. However, there is a potential supply of nearly 110,000 units of private residential housing over the next three to four years, and if necessary, the government can increase land supply flexibly. Chan emphasised that despite concerns raised about Hong Kong, which have affected capital flows, the government will continue to create land supply.

Chan acknowledged that the government has increased spending during the pandemic, and the budget proposal aims to achieve fiscal consolidation by reducing the overall expenditure from approximately 24% to around 20% of the gross domestic product by the fiscal year 2027-2028. He emphasised the importance of supporting small and medium-sized enterprises and citizens to strengthen the economy during the recovery period. Increasing tax revenue should be handled cautiously, and fiscal consolidation should not hinder the development of projects such as the Northern Metropolis and the River Trade Terminal. Chan suggested using appropriate debt and market funds to invest in the future during this transitional period.

Referring to the successful development of the wine industry after the cancellation of wine duties, Chan mentioned that there are ongoing studies to determine whether the same development can be achieved for spirits.