HK Property Buying Flurry To Avoid Stamp Duty

Chrissy Coleman

1 March 2013

Hong Kong property buyers have been in a bit of a flap over the last couple of weeks, racing to find loopholes and windows of opportunity to avoid government measures that are deterring speculative purchases.

Most recently, on Friday last week, the government said it was doubling stamp duties on home and non-residential properties valued at more than HK$2 million (approximately $258,000), and stamp duty on properties costing less than HK$2 million rose from a flat rate of HK$100 to 1.5 per cent of the transaction price.

According to the South China Morning Post, real estate developer, Sun Hung Kai Properties, brought forward the sale of flats to last Friday to beat the introduction of the latest round of government cooling measures which took effect at midnight on the same day.

"Almost all units were sold," Ken Lee, a senior sales manager at Centaline Property Agency, said of Sun Hung Kai’s last minute flat sale.

In response to the outcry of non-speculative buyers, the government assured the public that the new rates are not applicable to people who do not own other homes (including first-time buyers) or those selling their only property and buying a new one within six months.

Hotel rooms

Flats were not the only property to come hot off the market – investors seemingly found a legal loophole that allows certain hotel's units to be sold individually, enticing buyers looking to avoid paying residential stamp duty as these properties fall into the "commercial" bracket.

According to the SCMP, Cheung Kong property developer spotted this window and exploited it, selling all 360 units in the Apex Horizon hotel in Hong Kong, on Monday and Tuesday last week. However, as well as attracting attention from investors, government officials soon got wind of the move and intervened to avoid other real estate firms following suit.

Upon hearing news that buyers of these units intended to use them for residential purposes but avoid the stamp duty obligation, Hong Kong’s secretary for development, Paul Chan Mo-po, said the Lands Department had written to the developer requesting information to ensure the premises would still be used as a hotel, the SCMP reported.

Local media reports have questioned how much the government can do to intervene, so WealthBriefingAsia spoke with the Royal Institution of Chartered Surveyors (Hong Kong) international governing councillor, and chair of external affairs committee, David Tse.

Tse said buyers could live in hotel units and avoid stamp duty. “There have been many people living continuously for months or years in hotel rooms, and they live there just like other short-stay hotel guests, paying daily room rates – a hotel is classified as non-residential properties, thus will be exempted from sellers stamp duty and buyers stamp duty,” Tse said.

Another property specialist, familiar with the situation who asked not to be named, said: “There should not be any legal impediment for strata-tile sale of hotel units if there is no non-alienation restriction on the land grant and the buyers stamp duty should not be applied as the property nature is non-domestic.”

The specialist added: “But the investors should go through all the terms and conditions of the sale and purchase agreement and other supplementary agreement before purchasing the hotel units.”

Neither the unnamed source nor Tse believe that other developers will follow in Cheung Kong’s footsteps and put units up for sale to capture this loophole because “new, or more recent, hotel leases already include 'non-alienation unless as a whole' clause, explicitly prohibiting individual unit sale.