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November 16, 2016

Hong Kong’s move to raise residential property stamp duty to tame soaring real estate prices will lower transaction volumes in the near term and may spur investors to seek offshore assets, according to JLL.

“Volumes will go down in the interim as the market takes a step back to digest the news,” says Denis Ma, head of Research in Hong Kong. “Developers have already shelved planned launches to decide how best to adjust their sales strategies amid the changes. However for mum and dad investors, offshore residential properties will start to look attractive once again.”

The territory’s government raised the property stamp duty for the second time in three years from November 5. The stamp duty on property transactions for non first-time buyers was increased to 15 per cent for individuals and corporate buyers.

Hong Kong’s real estate is among the most expensive in the world, in part driven by demand from mainland Chinese buyers. In September, Hong Kong’s home prices rose for the sixth consecutive month, bringing the accumulated increase over six months to 8.9 percent, led by small and medium sized homes, according to government data.

Median residential home prices have more than tripled in the two decades since Hong Kong’s return to Chinese sovereignty, and have almost doubled since 2008.

According to JLL’s Global Premium Office Rent Tracker, the territory has the world’s costliest office space. Against a tight vacancy environment, rents in Central grew 2.3 percent quarter-on-quarter in the three months to June, reaching their highest levels since the Global Financial Crisis in 2008. JLL expects office rents to grow about 5-10 percent in Central in 2016.

Earlier this year, the search for opportunities led Hong Kong investors to look for real estate bargains following the fall in the value of the British Pound. The pound has fallen about 17 percent year-to-date since Brexit. In the commercial property sector, Hong Kong investor, Kingboard’s return to the London property market with a £271m acquisition of the European headquarters of WeWork in the City of London.

Mainland Chinese and Hong Kong investors’ purchases in Britain rose sharply after 2011, more than doubling from £760 million (US$961 million) in 2011 to £1.96 billion in 2012. They have not fallen below £1.5 billion annually since, and have already exceeded £2.0 billion this year to date.

While cooling measures on Hong Kong’s residential property market in the past has prompted some investors to shift their focus toward commercial and industrial properties, the likelihood of this occurring this time round is slim, according to Ma.

“The reason is that the residential market has been largely closed to speculative investors since late 2012. Moreover, commercial property yields are now much lower while the outlook for rental markets remains clouded by economic uncertainty,” says Ma.

Some developers including Sun Hung Kai, Henderson Land and New World Development have already moved to suspend residential sales, the South China Morning Post newspaper reports.

Hong Kong last raised stamp duties for non-first time buyers in February 2013. The current government of CY Leung has been active in attempting to tame runaway prices by introducing a few rounds of cooling measures, which included raising transaction tax and tightening mortgage lending.

“The government will continually adjust measures to ensure a stable property market,” says Ma.

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Denis Ma

Head of Research JLL Hong Kong

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