PRESS RELEASE

(Source : Information Services Department)

LCQ4: Imposing restrictions on the purchase of residential properties to curb speculation

     Following is a question by the Hon Mrs Regina Ip and a reply by the Secretary for Transport and Housing, Mr Frank Chan Fan, in the Legislative Council today (November 15):
 
Question:

     In the face of their overheated real estate markets, governments around the world have introduced measures to cool down the markets. For example, the Swiss Government has implemented since as early as 1984 a measure known as Lex Koller under which the number of holiday homes that foreigners may purchase is restricted to 1 500 for the whole country, and there are also restrictions on aspects such as the locality, usage as well as maximum area of such properties. Moreover, the Australian Government has prohibited non-local residents from purchasing second-hand residential properties, and the various provincial and municipal governments on the Mainland have also imposed different restrictions on the purchase and resale of residential properties. In this connection, will the Government inform this Council:
 
(1) of the respective numbers of first-hand and second-hand residential property transactions in each of the past five years, and set out in a table a breakdown of such numbers by the buyers' identities (including Hong Kong permanent resident (HKPR), non-HKPR, locally registered company and non-locally registered company) as well as the respective percentages of them in the relevant totals; whether it has assessed the impacts of the inflow of overseas capital on the first-hand and second-hand residential property markets; if so, of the details; if not, the reasons for that;
 
(2) given the keen housing demand of members of the public at present, whether the Government has considered introducing appropriate measures on purchase restrictions to curb the speculative demand for residential properties; if so, of the details; if not, the reasons for that; and
 
(3) given that the Government raised in November last year the rate of ad valorem stamp duty chargeable on residential property transactions across the board, but HKPRs who do not own any other residential property at the time of purchasing a residential property are not affected, and that as shown in the information released by the Inland Revenue Department, in respect of the residential property transactions effected during the period from December last year to March this year in which the buyers were HKPRs, 94% of such buyers did not own any other residential property, whether the Government has assessed the number of such transactions involving the purchase of residential properties under the names of other people (commonly known as "using other peoples' identities to buy flats") to reduce the amount of duty payable; if so, of the details of the assessment; whether it has plans to step up public education to impart to members of the public an understanding that both using other peoples' identities and allowing other people to use one's identity in property transactions are illegal; if not, of the reasons for that?

Reply:
 
President,
 
     In the past few years, due to tight housing demand-supply balance and the continued ultra-low interest rates environment, local property prices have been on the rise, with heightened risk of a bubble. To address the demand-supply imbalance, the Government has been striving to increase housing supply through multi-pronged measures. At the same time, the Government has introduced several rounds of demand-side management measures to suppress external demand, short-term speculations and investment demand. Having consulted the Financial Services and the Treasury Bureau and the Inland Revenue Department (IRD), I set out my consolidated reply to various parts of the question raised by the Hon Regina Ip as follows:
 
(1) Regarding external demand, the Government introduced the Buyer's Stamp Duty (BSD) in October 2012. Unless the buyer is a Hong Kong permanent resident (HKPR) acting on his/her own behalf, the residential property transaction concerned is subject to BSD at 15 per cent. Statistics on identity of buyers of primary and secondary residential property transactions from 2012 to 2016 are at the Annex. It is observed from the Annex that the proportion of primary and secondary residential property transactions involving non-local buyers (including individuals and companies) to the total transactions dropped from 4.6 per cent in 2012 to 2 per cent in 2013, and remained at a low level thereafter. Since property buyers in Hong Kong are not required to declare the source of funding, we are unable to assess the extent of external capital in the acquisition of local properties.

(2) As regards short-term speculative demand, the Government introduced the Special Stamp Duty (SSD) in November 2010, and has raised SSD rates and extended the property holding period for charging SSD since October 2012. Resale of residential property within 36 months of acquisition is subject to the payment of SSD at rates ranging from 10 per cent to 20 per cent, depending on the length of property holding period.
 
     After the introduction of SSD, the average proportion of short-term resale transactions (including confirmor transactions and resale with 24 months) to the total transactions significantly dropped from about 20% in January to November 2010 (i.e. before the introduction of SSD) to 0.7 per cent in January to September 2017.
 
     As regards investment demand, the Government introduced the doubled ad valorem stamp duty (DSD) in February 2013, and the New Residential Stamp Duty (NRSD) in November 2016. Unless the buyer is a HKPR acting on his/her own behalf who does not own any other residential property in Hong Kong at the time of acquisition, the residential property transaction concerned is subject to NRSD at 15 per cent. In other words, acquisition of residential property by a non-HKPR is subject to NRSD besides BSD, i.e. a stamp duty of 30 per cent in aggregate.
 
     After the introduction of NRSD (i.e. from December 2016 to September 2017), residential property transactions subject to DSD or NRSD accounted for about 11 per cent of total transactions, 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.
 
     The statistics above illustrates that the demand-side management measures remain eminently effective in reducing external, short-term speculative and investment demands. There is no imminent need for introducing measures on purchase restriction.

(3) When applying for exemption from BSD or stamping at the lower ad valorem stamp duty rates at Scale 2, residential property buyers have to submit to IRD a statutory declaration made under 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 found that the buyer's declaration is untrue, the buyer would 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, and shall be liable to a fine at level 6 (i.e. $100,000) and to imprisonment for one year. IRD has been closely monitoring the situation and taken follow-up actions on individual cases.
 
     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.