Lifting The Harsh Property Measures

Important Achievements / Opinions

Dating back to 2010, the Government has emphasised the need for "extraordinary measures in an extraordinary time" when it announced a set of "Spicy Measures", referring to stringent property measures, for the property market. Against the background of a shortage of land supply and global quantitative easing, property prices surged and speculative activities grew. In response, the Government introduced a list of measures to suppress demand by increasing transaction costs.

The Government has its own justifications for the stringent measures. When you don't have other options, you can only suppress demand. At the same time, you should try to solve land shortage and to speed up supply. But if you cannot solve land supply but continue to suppress demand, the result is a sharp fall in second-hand property transactions. The sale and purchase of residential flats were adversely affected. The "Spicy Measures" have therefore failed to achieve their expected effect. The measures have already been introduced for more than ten years. In whatever definition it may be, a period of over 10 years cannot possibly be considered as "an extraordinary time". It has become "a time of normalcy".

Over the years, I have persistently called for a full review in order to put the distorted market back on the right track. Otherwise, the "extraordinary measures" will become "normalised". Being the member who was the earliest one to have made a call for a total abolition of the "Spicy Measures", I am glad that the Government has finally heeded my advice and announced the abolition in late February 2024. The decision will help put the long-distorted property market back to normal, inject vitality to the economy and restore the confidence of citizens and investors.

On February 1, 2024, a motion debate on "Adjusting the policies on the stock and property markets to strengthen the impetus for growth" was tabled. I submitted an amendment motion calling for an immediate total abolition of the "Spicy Measures". Although my motion was not passed, a total of 45 members supported it. Only eight opposed. It showed my proposal had received broad support in the Council.

It took a long time for the Financial Secretary to finally admit in his Budget speech in 2024 that there was no longer a need to manage property demand in view of the economic environment. He announced all "Spicy Measures" would be scrapped immediately.

In a "Legislative Council Brief", the Government said "the removal of residential property demand management measures is expected to enhance market confidence and provide support to the property market". This is an understatement. The abolition not only helps increase supply in the second-hand residential market but alleviates the financial burden on local citizens seeking to buy another flat and foreigners who want to buy Hong Kong property.

With those measures scrapped, property developers do not have to first pay additional stamp duty before carrying out redevelopment. It will be conducive to urban renewal. Furthermore, the housing ladder of purchase of property will be rebuilt, facilitating the recovery of industries including property agents, legal services, banking and mortgages, renovations, furniture and appliances sales. The huge economic chain driven by the increase in property will help the overall economic recovery and enhance the well-being of citizens.

All "Spicy Measures" will be lifted. But what the Government did was to amend the stamp duty rate in Schedule 1 of the Stamp Duty Ordinance. The framework and related provisions of those "Spicy Measures" in the ordinance remain unchanged. This is because the Government hopes to keep them so that they can reintroduce those measures by adjusting the stamp duty rate if and when they found it necessary.

I think the only situation under which the Government may intervene in the market again is when its land and housing policies fail completely, causing a shortfall in supply and a hike in property prices. I can't help but ask why the Government lacks confidence in its own land and housing policies. Given the current number of completed and under-construction units, plus the land available from land sales and land exchanges, the supply of land is adequate in meeting the demand in the next few years. Taking into account the Government's subsidized housing supply, be it rental or sale, and long-term planning, we began to see the light at the end of the tunnel.

In addition, projects of new development zones, including the Northern Metropolis, North Fanling, North Kwu Tung, and Hung Shui Kiu, have also been launched. The Government is also easing urban redevelopment restrictions, which will further increase land supply. Only if none of these policies work, supply has already been secured otherwise. Why do we need to reintroduce stringent extraordinary measures? If the worst comes to worst, the Government should relentlessly strengthen governance to make sure the policies work, not to intervene in the market.

The Government introduced the first "Spicy Measures" in late 2010. It has taken 13 years for it to be totally abolished. It seems to me that the Government needed to spend 13 years to confirm some principles in economics. Take an example. Prices are determined by supply and demand. The original intent of the Government in introducing "Spicy Measures" was to suppress demand to buy time for an increase of supply. But prices will continue to go up if supply is still inadequate. Take another example. Oversupply of funds will inevitably spur investment demand. The loose monetary policy and ultra-low interest rates have inevitably made Hong Kong real estate a hot choice for investors.

Today, price adjustments are due to oversupply, rise in interest rates and weak market confidence in accordance with the same economics principle. The Government spent 13 years just to prove one thing: "market intervention through administrative measures does not work and, worse, is counterproductive."

In 1999, the Real Estate Developers Association of Hong Kong had commissioned Professor Richard Wong Yue-Chim of the Hong Kong Centre for Economic Research to conduct a study following speculation that the Government was preparing to introduce market intervention measures. The analysis in the research was very forward-thinking. Its conclusion read, "A reduction in demand will lower property market liquidity, thus increasing price risks. A decline in property prices will not only suppress the market but also harm the economy and slow growth. The impact of a fall in property value will also spread to the stock market. Asset losses will weaken businesses and financial institutions' balance sheets. The negative wealth effect caused by falling property prices will dampen consumer confidence and spending. Some families that use property and stock investments as collateral for loans will face financial difficulties. Government revenue will also drop sharply due to lower land prices and reduced real estate and stock market transaction volumes. The Government should adopt a steady increase in land supply to allow the market to function and adjust itself. Any misguided intervention will only bring risks to the market."

Economists are not prophets, nor am I. Even before becoming a legislator, I have persistently reiterated that "Spicy Measures" were intervening in the market. I have urged the Government to immediately drop them to revive the economy on the basis of some irrefutable principles in economics. The analysis in the 1999 report has proved to be true. I feel helpless and sad. I hope the Government will not repeat the same mistakes again. Hong Kong's economic success has been built by the hard work of Hongkongers from several generations. That could be destroyed overnight.

The total abolition of "Spicy Measures" is a significant milestone in the rebuilding of Hong Kong's economy. It also marks a perfect ending of my extraordinary journey. I was walking alone when I began the journey. Now, everyone was cheering happily. Let the past be a lesson for the future. I urge the Government to handle the economy with great care - just as the cooking of a small dish. Never let administrative measures distort the free market again.

Further Suggestions

Boosting The Local Property Market

It is an indisputable fact that Hong Kong's property market is tied up with the economy. High interest rates, the pandemic and geopolitics in the past few years have undermined public confidence in buying flats. Weak property market and perceived shrinking of wealth among flat owners have dampened consumer sentiments. Banks have adopted a conservative attitude towards mortgage approvals after the "Spicy Measures" were removed, resulting in slow approval process and inadequate valuations of flats. As a result, the removal of the measures only saw a short period of rebound. The market remains sluggish. My suggestions are as below:

Explore the idea of further increasing the loan-to-value (LTV) ratio for mortgages and relaxing mortgage insurance conditions, so that eligible individuals can purchase homes when property prices are relatively low. At the same time, banks should speed up the mortgage approval process and review residential loan limits.
Relax the mortgage ratio for the purchase of a second self-occupied residential property, adjusting it to the same level as the first property; reduce the down payment requirement, activate the property upgrading chain, and allow the original residential property to also be used for rental purposes, thereby increasing the supply in the rental market.
Improve the Capital Investment Entrant Scheme by allowing part of the investment funds to be used for purchasing real estate. For example, permitting half or one-third of the funds to be allocated to property purchases. This will help stimulate the property market and align with the "trawl for talents" policies. If the Government is concerned that allowing such investment schemes involving residential properties might affect young people's ability to "get on the housing ladder", restrictions could be placed to ensure that such investments are limited to luxury properties.
Those who come to Hong Kong under the "Top Talent Pass Scheme" should be allowed to use funds in the mainland for buying homes for self-use. Doing so will nurture a sense of belonging.

Long-term Housing Strategy

The Long-Term Housing Strategy (LTHS) should have a deeper meaning. It should enable Hong Kong citizens to have a sense of belonging, stay in Hong Kong and work together for a better tomorrow.

Envisioned "Building homes for Hong Kong people", the 1998 Long Term Housing Strategy is aimed to encourage more citizens to own their homes. Unfortunately, the vision was no longer to be found in the 2014 Long Term Housing Strategy document. There was a time when a Chief Executive held the view that Hong Kong people should not only own their homes but also "live better and bigger". Under this belief, the notion of "housing ladder" came into being. In the spirit of striving for success, Hong Kong people have tried to move up from the housing ladder step by step. The Government, meanwhile, came up with policies to support and help them achieve their property ownership goals. But circumstances had turned against us. The visionary plan was disrupted by the Asian financial crisis, resulting in a failure. Since then, the SAR government has encountered enormous difficulties in increasing public housing supply, let alone raising the percentage of home ownership.

Today's situation is vastly different. After years of persistent hard work by multiple administrations, land and housing supply has finally been secured. Earlier, Secretary for Housing, Winnie Ho, told young people at a meeting in the Council they should set their eyes on subsidized sale flats, not public housing. I would go further and encourage young people to aim higher - home ownership.

Why? This is because the public rental housing unit is not owned by the tenants. It cannot be passed down to their next generation. Under the Home Ownership Scheme (HOS), the Government designs and builds the flats on locations they select. With luck, you may get one in a lottery arrangement. The choice of self-owned homes allows you to decide where to live, how big your flat is and how to decorate it. More importantly, owning your own home helps you accumulate wealth. It is "real estate". It is "Real" because the property is tangible wealth. It is "Estate" because you can pass it down to your next generation. The ownership of your own home means planting seeds. No matter where you are in the world, as long as your home is in Hong Kong, your heart will naturally be in Hong Kong. That's the true sense of belonging.

The Government should put the goal of increasing home ownership rate back into the LTHS, making it the primary goal of the housing ladder. Help citizens own their own homes. Increase their sense of belonging. Let us work together to build a better home for Hongkongers!

The Government should proactively formulate a range of policies.

Respect market rules and avoid intervening with administrative fiats;
Maintain an open and free-flow market; provide homebuyers with more options;
Increase the loan-to-value ratio and relax mortgage insurance conditions to help citizens get on the housing ladder;
Increase the proportion of private housing in the overall housing supply, making the housing ladder wider and more accessible.

Background / Latest Developments

Table / Timeline Of Demand Management Measures Introduced By The Government Since 2010

November 20, 2010 / Introduction of the "Special Stamp Duty" (SSD)
A 15% Special Stamp Duty is imposed on properties sold within six months; 10% for properties sold within six to 12 months; and 5% for properties sold within 12 to 24 months.
October 26, 2012 / Introduction of the "Buyer Stamp Duty" (BSD)
A 15% Buyer Stamp Duty is imposed on the purchases of residential properties by non-permanent residents of Hong Kong and those through local or overseas companies.
October 26, 2012 / Introduction of the "Enhancement to the Special Stamp Duty"
The duration of the Special Stamp Duty (SSD) is extended from two years to three years. The rate for sales within the first six months is increased from 15% to 20%, from 10% to 15% for those within six to 12 months, from 5% to 10% for those within one to three years.
February 22, 2013 / Introduction of the "Double Stamp Duty" (DSD)
For properties valued at HKD 2 million or below, stamp duty is increased from HKD 100 to 1.5% of the price of the property. The stamp duty rate is doubled across the board, with the highest rate increasing from 4.25% to 8.5%. First-time buyers or those upgrading their homes are exempt. The stamp duty scope is extended to non-residential properties. Stamp duty needed to be paid after the "sale and purchase agreement" is signed.

To combat prospectors in non-residential properties, including shops, offices, and industrial buildings, stamp duty payment is required after signing temporary sale agreements.
November 4, 2016 / Introduction of the Enhanced New Residential Stamp Duty (NRSD), replacing the existing DSD measures
The new tax rate is raised to 15% across the board, with exemptions for first-time buyers or those upgrading their homes. This new tax rate only applies to residential properties. Non-residential properties continue to be subject to double stamp duty.
April 11, 2017 / "Purchasing Multiple New Homes Under a Single Contract" must pay 15% Ad Valorem Stamp Duty on the property price
Buyers purchasing multiple units under a single contract as first-time home buyers need to pay 15% Ad Valorem Stamp Duty on the property price.
November 25, 2020 / Abolition of Double Stamp Duty for non-residential properties
Anyone purchasing non-residential properties will revert to the standard stamp duty rate.
October 19, 2022 / "Refund of Stamp Duty" for eligible foreign talent
The Chief Executive announced in the 2022 Policy Address eligible foreign talent could apply for a refund of the Special Stamp Duty paid on property purchase in Hong Kong after they become permanent residents.
October 24, 2023 / First reduction of the "Triple Spicy Measures"
1. The duration of the Special Stamp Duty (SSD) is reduced from three years to two years.
2. Buyer's Stamp Duty (BSD) and New Residential Stamp Duty (NRSD/DSD) are halved.
3. The stamp duty for overseas talents buying property is changed. Instead of having to pay the tax first and get a refund after they become permanent residents, they will be exempted from payment until after they have not become permanent residents.
February 28, 2024 / Removal of all "Spicy Measures"
The Government removes all "Spicy Measures", namely the Special Stamp Duty (SSD), Buyer's Stamp Duty (BSD), and New Residential Stamp Duty (NRSD).

Overall Context Of The Introduction Of The Property Market "Spicy Measures"

The introduction of the property market "Spicy Measures" began in November 2010 when the Government imposed a Special Stamp Duty (SSD) to suppress short-term speculative activities. Buyers were required to pay SSD ranging from 5% to 15% of the property price if they resold the property within two years. However, the SSD resulted in a drop in the supply of second-hand properties. Property prices had not dropped but instead continued to go up. In October 2012, the Government further tightened the measures by introducing an enhanced SSD, extending the resale restriction from within two years to three years and raising the tax rates to a range of 10% to 20%. A Buyer's Stamp Duty (BSD) was also introduced to target non-local buyers and those purchasing properties through local or overseas companies, imposing a 15% stamp duty on those purchases.

Property prices had not gone down as predicted. According to data from the Rating and Valuation Department, the property price index increased by 36.6% from 2010 to 2012. To curb long-term investment and homebuyers' demand, the Government introduced a Double Stamp Duty (DSD) in February 2013. All non-Hong Kong permanent residents, or those who already owned a residential property in Hong Kong, were required to pay DSD, under which, the highest rate of stamp duty was raised from 4.25% to 8.5%.

At the time, the Government described the "Triple Spicy Measures" as "extraordinary measures in an extraordinary time". The Government stated that increasing supply was essential in tackling the long-term housing problem. As supply could not meet demand in the short term, those measures were necessary to help differentiate buyers in the market, increase the costs of flat purchases by those who are targeted and to reduce the demand from different buyer groups to ease the supply-demand imbalance.

With global quantitative easing, property prices in Hong Kong continued to rise. By 2016, the property price index had reached 286.1 points, representing a 90% hike from 2010. In November 2016, the Government announced the introduction of the ad valorem stamp duty (AVD) to replace DSD. Whether purchased by individuals or companies, anyone buying a second property, or more, will be required to pay a uniform 15% stamp duty, significantly increasing the entry cost for non-first-time buyers.

The "Triple Spicy Measures" were only adjusted after the COVID-19 pandemic in 2020, which only involved non-residential properties. In the 2020 policy address, the Government announced the removal of the ad valorem stamp duty on non-residential properties.

Following a downturn in the property market, the property price index dropped to 360.3 points in September 2022, an almost 10% dip compared to the historic high of 398.1 points in September 2021. At that time, there were voices saying the "Spicy Measures" were outdated and were making negative impacts on Hong Kong's talent policy. The Government announced in the 2022 Policy Address eligible foreign talent could apply for a refund of the Special Stamp Duty paid on property purchase after they become permanent residents.

The property market downturn continued unabated. By September 2023, the property price index had dropped to 329.1 points, a 17.3% decrease compared to the historic high. In the 2023 Policy Address, the Government adjusted the "Triple Spicy Measures", marking the first reduction of the measures since their introduction in 2010.

According to official data, the Government first shortened the duration of the Special Stamp Duty (SSD) from three years to two years. The Buyer Stamp Duty (BSD) and New Residential Stamp Duty (NRSD) rates were halved, or from 15% to 7.5%. The Government also improved the stamp duty refund mechanism for foreign talents. Instead of having to pay the tax first and get a refund after they become permanent residents, they will be exempted from payment until after they have not become permanent residents.

By the end of February 2024, the Government announced in the Budget all residential property demand management measures will be removed after careful consideration of the current overall situation. After more than 13 years, the widely known "Spicy Measures" in the property market, including the Special Stamp Duty (SSD), Buyer Stamp Duty (BSD), and New Residential Stamp Duty (NRSD), will be scrapped.

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