In my last article I applauded the SAR government’s commitment to building up a land bank in Hong Kong so new land shortages will not arise. I also applauded the chief executive’s effort in increasing transitional housing and helping people in the queue for public housing. However, I disagree that this is not the time to reduce the severity of the various “special” stamp duties introduced to “cool the housing market”. 

Currently there are two kinds of “special” stamp duties for properties. First is the “Special Stamp Duty” (SSD) which Singaporeans call “Seller’s Stamp Duty”. Our SSD was modeled after Singapore’s. Singapore introduced its SSD in February 2010. We introduced ours in November the same year. Both were soon “toughened.” Hong Kong raised its top rate from 15 percent to 20 percent, applicable when the buyer resells within 6 months of the purchase, and extended the maximum SSD-payable period to 3 years. Singapore raised the top rate of its SSD from 3 percent to 16 percent from January 14, 2011, applicable for properties sold within a year. A modest rate at 4 percent would be payable even after 3 years of the original purchase, vanishing to zero only after 4 years have lapsed. However, Singapore has since then reduced the “toughness” significantly, with the top rate dropping to 12 percent in the first year, falling to 8 percent in the second year, 4 percent in the third year, and 0 percent starting from the fourth year. Hong Kong’s SSD rate is still at 10 percent in the third year.

The SSD (Special Stamp Duty) has reduced the supply of starter homes, as it has intimidated people from trading up activities

The second kind of special stamp duty is called the Additional Buyer’s Stamp Duty in Singapore and the Buyer’s Stamp Duty in Hong Kong. The ABSD or BSD is intended to give preference to home buyers over investors, and citizen purchases over foreigner purchases. This makes sense, because home buyers are deemed to have priority over investors, and locals’ housing needs must have priority over foreigners. 

Both the Chief Executive Mrs Carrie Lam Cheng Yuet-ngor and Financial Secretary Paul Chan Mo-po noted that the demand for home purchases is still strong, unlike the demand for commercial properties. That justified the removal of the BSD (also called the Double Stamp Duty because it was first introduced by doubling the usual rate; it was raised to 15 percent in November 2016). The government is worried that removing the BSD would stimulate investor demand and hurt home buyers. 

I would NOT recommend removing the BSD altogether. However, I think it will be a good idea to allow investors to keep their existing “quota” of property holdings. This means allowing them to sell their properties now and buying again without the BSD, as long as they do not add to the number of properties owned. If they do, then the BSD at the going rate will still apply. 

Such a change will actually increase supply without stimulating new demand. Investors will also be encouraged to sell their smaller properties now, and buying bigger more expensive properties later, because the implied savings will be higher. This will therefore INCREASE the supply of modest homes more than the supply of more expensive homes. If they buy later on, the likelihood is that the purchases will impact on the prices of more expensive homes. 

I shall now turn to the SSD. There is NO EVIDENCE that the SSD has ever assisted first time home buyers in any way. If anything, all the evidence is that the SSD has driven up the prices of starter homes, making such homes increasingly unaffordable for first time home buyers. 

Anyone can take a look at the statistics. The Rating and Valuations Department classified residential homes by size. The smallest belong to A; the biggest belong to E. There are far more homes in class A than homes in classes D and E. After the SSD was imposed in 2010, and then enhanced in October 2012, the prices of Class A homes rose much faster than before, and much faster than Class D and Class E homes. The price indices were both at 100 in 1999. In October 2010, the price index of D and E stood at about 202.6, much higher than A’s at about 163.2. In October 2012 the price index of Class A homes stood at 239.3, having almost caught up with that of D and E at 246.9. In October 2020, Class A home price index stood at 424.1, far higher than 383.5 for Class D and E. 

These numbers are almost beyond reasoning. It is believed that today higher income people have incomes rising faster than poor people. The prices of luxury goods thus also rise faster than the prices of necessities. But the prices of poorer people’s homes are surging ahead. The explanation lies in supply and demand. The SSD has reduced the supply of starter homes, as it has intimidated people from trading up activities. The significant declines in housing market transactions testifies to this phenomenon. If people living in modest homes do not sell their homes, there will be a shortage. 

This is why I think removing SSD will be good for Hong Kong’s first time home buyers. A bonus is that it will be good for the economy. 

The author is a Senior Research Fellow, Pan Sutong Shanghai HK Economic Policy Research Institute, Lingnan University.

The views do not necessarily reflect those of China Daily.