LCQ19: Addressing overheated residential property market
According to the conditions set out in the land leases granted under the "Hong Kong Property for Hong Kong People" (HKP-HKP) policy, the sale of flats built on the land concerned is restricted to Hong Kong permanent residents for 30 years from the date of the relevant land grant. On the other hand, on November 4 last year, the Government implemented the new measure of raising the ad valorem stamp duty (AVD) chargeable on residential property transactions to a new flat rate of 15 per cent (new tax), but buyers who do not own any other residential property in Hong Kong at the time of acquisition of a residential property (first-time home buyers) are exempted. However, quite a number of first-time home buyers bought two or more properties simultaneously under one sale and purchase agreement (commonly known as buying multiple flats under one agreement) in recent months. There are views that the fact that such buyers, who are obviously investors not end users, are not required to pay the new tax indicates that there is a loophole in the aforesaid new measure. Moreover, it has been reported that of the recently sold 310 flats of the first residential project under the HKP-HKP policy, 60 flats were bought by 30 first-time home buyers with the practice of buying multiple flats under one agreement. Such buyers included a staff member of a representative office of the Central Government in Hong Kong (the staff member concerned has reportedly worked in Hong Kong for less than seven years and is now retired) who bought two flats at a cost of over $10 million without having to pay the new tax. In this connection, will the Government inform this Council:
(1) as it has been reported that more and more tycoons bought multiple expensive residential flats simultaneously under one agreement in the names of the youngsters or elderly persons in their families who do not own any property in order to avoid paying the huge new tax, whether the Government has assessed if such a practice will result in the proliferation of litigation cases involving estate disputes in future, thereby increasing the court's workload and compromising family ethics and social harmony; if it has assessed, of the outcome; if not, the reasons for that, and whether it will conduct an assessment immediately;
(2) as it has been reported that of the 30 transactions of residential properties involving a total of about $13 billion recorded in recent months, only four are subject to the new tax, whether the Government has assessed if investors’ practice of buying multiple flats under one agreement involves tax avoidance, and if the new tax has failed to achieve the intended effect of cooling down the overheated property market; if it has assessed, of the outcome;
(3) whether it has assessed if the investors' practice of buying multiple flats under one agreement reduces the chance of home ownership by the middle class, and departs from and runs contrary to the policy intents of helping the middle class to buy their first property and cooling down the property market; if it has assessed and the outcome is in the affirmative, how the Government will plug the loophole; and
(4) whether there is any mechanism currently in place to prevent persons who have not yet obtained the Hong Kong permanent resident status (including staff members of the representative offices of the Central Government in Hong Kong) from buying properties built under the HKP-HKP policy, so as to ensure that priority will be given to addressing the home-buying needs of Hong Kong people; if so, of the details?
To address the overheated residential property market, the Government announced the New Residential Stamp Duty (NRSD) measure on November 4, 2016 to increase the ad valorem stamp duty (AVD) chargeable on residential property transactions to a new flat rate of 15 per cent. The new measure increases the transaction costs, thereby reducing investment demand for residential properties, which in turn helps cool down the housing market and guard against further increase in the risks of a housing bubble.
When announcing the NRSD measure, the Government proposed to adopt the exemption arrangements under the doubled AVD regime. Under the relevant exemption arrangement, acquisition of residential property under a single instrument, irrespective of the number of residential property involved, is exempted from the NRSD rate of 15 per cent and is only subject to the lower AVD rates at Scale 2 if the buyer concerned is a Hong Kong permanent resident (HKPR) acting on his/her own behalf and is not a beneficial owner of any other residential property in Hong Kong at the time of acquisition.
There has been public concern over the recent increase in transactions involving acquisition of multiple residential properties under a single instrument. To prevent local investors from making use of the above exemption arrangement to avoid the payment of NRSD, the Government decided to tighten up the relevant exemption arrangement with effect from April 12, 2017.
The Government will amend the Stamp Duty Ordinance, to the effect that acquisition of a single residential property under a single instrument by a HKPR who is acting on his/her own behalf and is not a beneficial owner of any other residential property in Hong Kong at the time of acquisition will continue to be exempted from the NRSD rate of 15 per cent, and will only be subject to lower AVD rates at Scale 2. However, if a HKPR-buyer acquires more than one residential property under a single instrument, the transaction concerned will no longer be exempted, and will be subject to the NRSD rate of 15 per cent.
Under the existing regime, when applying to Inland Revenue Department for stamping at the lower AVD rates at Scale 2, a buyer has to submit a statutory declaration and declare that he/she is a HKPR acting on his/her own behalf and is not a beneficial owner of any other residential property in Hong Kong. A buyer who wilfully makes a false statement in the statutory declaration made by virtue of the Oaths and Declarations Ordinance may commit the relevant criminal offence under the Crimes Ordinance.
Moreover, if AVD has been charged at Scale 2 rates based on the statutory declaration submitted by a buyer, and it is subsequently found that the buyer's declaration is not correct, the buyer will be liable for paying the duty difference (i.e. the difference between AVD computed at the new rate of 15 per cent and Scale 2), as well as the penalty incurred by late stamping. Besides, the Government has all along emphasised that acquiring properties on other's behalf is risky in that there may be future disputes on the title of the properties concerned.
The policy objective of the "Hong Kong Property for Hong Kong People" measure (HKPHKP measure) is to accord priority to HKPRs in making use of our scarce residential land resources in the midst of a tight demand-supply situation in the property market. According to the Development Bureau, when announcing the implementation details of the HKPHKP measure in March 2013, it was made clear that the restriction on sale to HKPRs only would be applied to suitable individual sites through land sale conditions.
The land sale conditions that are subject to the HKPHKP measure contain Special Condition No. (16)(a), which restricts alienation of any residential unit by the buyer (i.e. the developer and each subsequent owner) before the expiry of a period of 30 years from the date of the land sale conditions except with the prior written consent of the Director of Lands. One of the restrictions under the Consent Letter is that residential units must be sold to holders of a valid Hong Kong Permanent Identity Card. The Consent Letter also requires each buyer to make a statutory declaration to substantiate his/her eligibility as stipulated under the Consent Letter, and each Agreement for Sale and Purchase and Assignment shall contain a certification by a solicitor that the relevant "Hong Kong People" buyer is a holder of a Hong Kong Permanent Identity Card and that each buyer has made the required statutory declaration. The seller is also required to submit a certified copy of the statutory declaration(s) made by the buyer to the Director of Lands.
The Consent Letter is issued under the land sale conditions. Hence, a breach of the conditions of the Consent Letter means that a valid consent has not been obtained in accordance with the land sale conditions. The Lands Department would consider taking appropriate lease enforcement action, including vesting the interest in the relevant residential unit in The Financial Secretary Incorporated in accordance with the Government Rights (Re-entry and Vesting Remedies) Ordinance. If a buyer has made a false statement in the statutory declaration when purchasing a HKPHKP property, the buyer concerned is liable to be prosecuted for committing the relevant criminal offence under the Crimes Ordinance.
Ends/Wednesday, April 12, 2017
Issued at HKT 14:40
Issued at HKT 14:40