Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
I am a first-time buyer who’s considering purchasing multiple properties in Hong Kong. Can you explain how the recent adjustment to the 15% residential stamp duty would affect me?
As of April 12, 2017, anyone buying more than one residential property under a single written agreement will be subject to a flat 15% stamp duty in Hong Kong if legislators approve a proposal to cool the sizzling market, said Alan Yip, partner at Mayer Brown JSM law firm in the city.
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The revision to Stamp Duty (Amendment) Bill 2017 is intended "to stop wealthy permanent residents from buying too many residential units in one go" and renting them out, said Raymond Tse, principal and practicing solicitor at Raymond T.L. Tse & Co. in Hong Kong.
The Hong Kong government announced last year that any sale and purchase agreement executed on or after Nov. 15 will be subject to a flat rate of 15% stamp duty. However, first-time homebuyers who are Hong Kong permanent residents can pay a lower tax rate. Those stamp duty rates range from HK$100 (US$12.85) to 4.25% of the purchase price, Mr. Yip said.
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But some wealthy permanent residents and first-time buyers were still able to take advantage of a loophole that allowed them to buy multiple residential properties and pay only 4.25% stamp duty on the entire purchase, saving significantly. For example, if a permanent resident first-time buyer purchased two flats each at HK$100 million under two separate agreements, the stamp duty would be HK$19.25 million (i.e., HK$4.25 million for first flat: $100 million x 4.25%; and HK$15 million for the second flat: $100 million x 15%), Mr. Yip said. But if both flats are covered by a single agreement, then the stamp duty would be HK$8.5 million (i.e., $200 million x 4.25%), nearly HK$11 million less.
To plug the loophole, the Hong Kong government announced that, as of April 12, a permanent resident who acquires more than one residential property under a single agreement will be ineligible for the 4.25% stamp duty and subject to the 15% stamp duty, he said. Using the above example, the stamp duty on the two flats, even covered by a single agreement, would be HK$30 million (i.e., $200 million x 15%).
Buying two or more apartment units on the same floor would be considered a multiple purchase, but an apartment and a parking spot in the same building is not. Now the permanent resident can only buy one residential unit to enjoy the first-time-buyer stamp duty rate, Mr. Tse said.
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"This is typical demand-side suppression," with the government "trying to preserve the limited supply of residential units in Hong Kong," he said. Hong Kong housing is the most unaffordable in the world, according to the 13th Annual Demographia International Housing Affordability Survey: 2017 released in January. The median home price is HK$5.4 million (US$694,000), it reported.
Non-Hong Kong permanent residents (e.g. a foreigner or a company) buying residential property will have to pay a 15% buyer stamp duty plus the additional fixed 15% stamp duty, Mr. Tse said. This double duty (at the highest rate of stamp duty) helps deter foreign buyers, except those for whom price isn’t a factor.
Hong Kong’s Legislative Council needs to approve both the government-proposed flat 15% stamp duty and the closing of the multiple-purchases loophole. When approved, the amendments will be retroactive from Nov. 15, 2016, and April 12, 2017, respectively, Mr. Yip said.
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