Finally, with the announcement of the Budget 2024-25, all “demand-side management” measures for residential properties were canceled with immediate effect, including the Special Stamp Duty (SSD), the Buyer’s Stamp Duty (BSD) and the New Residential Stamp Duty (NRSD), all of which were introduced more than a decade ago.

This undated file photo shows Devin Lin, a program director at HKU SPACE. (PROVIDED TO CHINA DAILY)

The cancelation of NRSD enables Hong Kong property owners to buy more properties in Hong Kong without paying an extra 15 percent of the transaction price in tax; whereas the cancelation of BSD enables external buyers, including Chinese mainland residents and foreigners, to buy Hong Kong property at the same tax rate as Hong Kong permanent residents. And the cancellation of SSD enables all property owners in Hong Kong to resell their properties within two years at no extra tax duty. 

The underlying rationale of BSD, SSD and NRSD was to limit access and fluidity in the real estate market in order to curb speculation. The Hong Kong Special Administrative Region government’s priority was clearly to avoid an overheated property market and maintain financial stability. Now that all these tough measures are gone, Hong Kong’s real estate market is staging a comeback for an international market.

The rising popularity of Chinese mainland social media platforms in Hong Kong such as Weibo and Xiaohongshu (the Red Booklet) allows news to travel faster and reach a wider audience on the mainland.

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The excitement from the mainland side should have been anticipated. Within hours of the announcement on cancellation of those restrictive measures, there were heated discussions on mainland social media platforms, speculating about their impact on home prices in first-tier mainland cities now that transaction costs of Hong Kong properties are lowered for mainland buyers. 

Although it may be a signal of change of direction for the market, it is unrealistic to expect the current downward trend in home prices to end immediately after the cancellation of the stamp duty measures

The immediate concern is whether the enhanced fluidity and easier access by mainland and overseas buyers will make Hong Kong properties more, or less, pricey?

Undoubtedly the Hong Kong real estate market is attractive to mainland buyers because of the city’s unique status in China under the “one country, two systems” framework, its freewheeling economy, connectivity to the world, proximity to the mainland, and its common law system.

The appeal of Hong Kong’s real estate market was enhanced after the commencement of the Residential Properties (First-hand Sales) Ordinance (Cap 621) and the establishment of the Sales of First-hand Residential Properties Authority (SRPA) in 2013, to regulate dissemination of unfair or misleading information in promotional materials provided by developers.

However, those who are considering investing in Hong Kong should be aware of the many recent cases wherein investors ended up reselling their property at a loss. 

Although it may be a signal of change of direction for the market, it is unrealistic to expect the current downward trend in home prices to end immediately after the cancellation of the stamp duty measures. While transaction costs for residential properties have returned to the 2009 level with the scrapping of all “demand-side management” stamp duties, the mentality of property investors in both Hong Kong and the mainland has changed, after witnessing a cycle of rise and fall of the mainland real estate market. 

Mainland property investors are more experienced in overseas property investment and more prudent in making their investment moves. There is a wide range of residential properties in Hong Kong in terms of location, interior design, fittings and finishes, developer’s reputation, and connectivity to MTR stations and highways, . 

In recent years there have been cases involving misrepresentation of the location of first-hand properties in Hong Kong, as well as the use of poor quality cement necessitating the reconstruction of a new residential tower. 

Ratios for properties valued between HK$30 million and HK$35 million will be adjusted downward gradually to avoid a sudden drop in applicable LTV ratios

Sales and purchases of second-hand residential properties between private homeowners and investors are not subject to the Cap 621 regulation. While mainland investors are more selective about Hong Kong properties, there are still uncalculated risks in making a decision to buy a property. Removing the BSD will not necessarily make Hong Kong properties more expensive by creating stronger demand from mainland buyers, but the prices of those properties that cater to overseas investors may rise because of stronger demand.

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The local community is excited by the new policy. Upon the announcement of the measures by the financial secretary, some property vendors immediately raised asking prices by as much as HK$1 million ($128,000). 

The 2024-25 Budget seems to have given a long-awaited boost to the property market. Lowering transactions costs for mainland and overseas buyers will certainly boost the purchasing power of potential buyers and this is positive for the local property market, and conducive to maintaining the stability of the market and Hong Kong’s status as an international city and the world’s freest economy.

Along with the release of the 2024-25 Budget,  the Hong Kong Monetary Authority announced adjustments to the countercyclical macroprudential measures for property mortgage loans with immediate effect. For residential properties, the maximum loan-to-value ratio for homes valued at HK$30 million or below has been raised to 70 percent, and for properties valued at HK$35 million or above to 60 percent. Ratios for properties valued between HK$30 million and HK$35 million will be adjusted downward gradually to avoid a sudden drop in applicable LTV ratios. These adjustments, allow homebuyers to borrow more from banks, therefore helping them afford higher-priced properties.

The author is a program director at HKU SPACE. 

The views do not necessarily reflect those of China Daily.