Cookie consent

We use cookies to improve your experience on this website. By continuing to browse our site you agree to our use of cookies. Tell me more | Cookie preferences

Foreigners taxed out of Hong Kong property?

Hong Kong punctures property bubble

    Just Watched

    Hong Kong punctures property bubble

Hong Kong punctures property bubble 02:42

Story highlights

  • Foreigners are taxed additional 15% for purchasing new homes in Hong Kong
  • New property tax comes after 9% of home purchases by mainland Chinese
  • Chinese would-be home buyer calls new policy "unfair"

Many of Hong Kong's foreign residents will have to think twice before buying a new home in this Asian financial hub.

In a surprise move last month to curb skyrocketing property prices, the Hong Kong government announced the immediate implementation of a 15% property tax on all home purchases -- by foreigners.

The fallout has been fast.

"I think it's a harsh measure," says Brock Little, an Australian who has called Hong Kong home the past six years.

Little, a realtor with local agency Island Property, says the anti-foreigner tax has priced some of his western clients out of the market.

"Some of them who've been here for three to five years...now they basically see Hong Kong as not very welcoming, not really accommodating, to setting up permanently," he says.

How to invest in real estate

    Just Watched

    How to invest in real estate

How to invest in real estate 03:32
PLAY VIDEO
Investors snap up real estate in Mexico

    Just Watched

    Investors snap up real estate in Mexico

Investors snap up real estate in Mexico 04:18
PLAY VIDEO
Buy an apartment, get a BMW

    Just Watched

    Buy an apartment, get a BMW

Buy an apartment, get a BMW 01:56
PLAY VIDEO
Hong Kong tycoons profess innocence

    Just Watched

    Hong Kong tycoons profess innocence

Hong Kong tycoons profess innocence 02:08
PLAY VIDEO

Little adds the tax fails to match Hong Kong's image as a world-class city and that some of his clients are now thinking about leaving.

But the Hong Kong government sees the tax as a necessary policy to protect the city's economy from an inflating property bubble -- fueled not just by foreign investment but also by low interest rates linked to protracted quantitative easing by the U.S. Federal Reserve and limited supply of new housing on the market.

In just the first nine months of this year, average property prices in Hong Kong jumped 20%. Since the start of 2010, the price ballooned 50%.

This has made Hong Kong's property sector a dream for established homeowners but a nightmare for potential buyers.

"Hong Kong is the most expensive of our cities in which to purchase property," wrote Savills, a global real estate services provider, in its Spring 2012 World Cities Review. The city is pricier than Singapore, London, Tokyo and Paris, Savills found.

Savills added Hong Kong's property market "is in a league of its own."

Mainland Chinese targeted

While Hong Kong's new tax affects a broad swath of Hong Kong's foreign population, property experts say the real bull's-eye is on the backs of a more specific group of buyers flush with new wealth from right across the border in China.

"I think it's mainly focusing on mainland buyers," says Buggle Lau, chief analyst for Midland Realty, one of Hong Kong's largest real estate companies.

He says he does not totally agree with the new tax policy, but that it is something the government has to do.

"Over the past two years and three quarters, we roughly estimate about 9% of the buyers (of Hong Kong property) are from the mainland," says Lau.

In absolute terms, it may not sound like much, but Lau asserts it is "a pretty big chunk compared to the annual supply of residential units in Hong Kong."

He says just 8,000 to 10,000 new residential units come online every year -- a supply bottleneck that keeps the city's property prices climbing.

With the tax in force, Lau forecasts a 2% to 3% drop in the number of mainland Chinese investors in Hong Kong property. This figure is expected to be 5% in the next six months.

"Unfair"

Jason Liang, 27, is one of the first mainland Chinese in Hong Kong to be hit by the new tax.

Two years ago, he moved to the city as a student, then parlayed his diploma into a financial relations job after graduation.

Liang and his wife planned to buy his first Hong Kong home in December and had already prepared a 20% down payment. The new tax dashed their dreams, literally overnight.

"It is unfair, emotionally it is unfair for me," he said. "It's a surprising policy because I think Hong Kong is a very free market (and) they don't want to curb any investments."

Liang stressed that he is different from other mainlanders, many of whom are believed to be speculators driving the city's property bubble.

"Most of the speculators are from mainland China," he says. "For me, I'm also from mainland China, but I'm [part of] the people who work here, have a stable salary, and I just want to buy affordable houses, instead of renting a place at a high price."

But he understands the new tax does not differentiate based on intent - only on immigrant status.

Interest rates, property supply

Looking ahead, Lau, the real estate analyst, predicts Hong Kong's anti-foreigner property tax may stay in effect through 2015 when the city's interest rates may rebound and when new property is expected to become available, according to government estimates.

But he cautions against any expectations of a price crash saying "property prices will remain flat or soften a little bit" over the next six months.

In the meantime, many would-be buyers will wait out the life of the tax, sitting on their money until the policy ends.

Liang says he plans to stay in Hong Kong for the long haul.

"Comparing with mainland China, it is still a better place," Liang says. "It is still a free market for me. So I love it here, I still love it here."

      CNN Business

    • An Iraqi worker adjusts a control valve at the Daura oil refinery on November 5, 2009 in Baghdad, Iraq. Iraq and a grouping of U.S and European oil companies Exxon Mobil Corp and Royal Dutch Shell PLC signed a $50 billion contract today to develop the West Qurna oilfield, two days after the Iraqi South Oil Company signed a technical service contract with Britain's BP and China's CNPC to develop the Rumaila oilfield. The Iraqi government is trying to attract foreign investment, especially in the oil sector, in hopes of reviving its war-torn economy. Iraq has the third largest oil reserve in the world but it is producing way below its potential. (Photo by Muhannad Fala'ah/Getty Images)

      Airstrikes, rebels seizing control of oil fields, plus a severe refugee crisis are a recipe for market panic. So why are Iraq oil prices stable?
    • A view of gloves and boots used by medical staff, drying in the sun, at a center for victims of the Ebola virus in Guekedou, on April 1, 2014. The viral haemorrhagic fever epidemic raging in Guinea is caused by several viruses which have similar symptoms -- the deadliest and most feared of which is Ebola. AFP PHOTO / SEYLLOU (Photo credit should read SEYLLOU/AFP/Getty Images)

      The biggest Ebola outbreak in history is taking its toll in Western Africa, hitting some of West Africa's most vulnerable economies.
    • People enter a casino in Las Vegas, Nevada, on April 18, 2009. Las Vegas is the most populus city in the US state of Nevada and internationally renowned major resort city for gambling, shopping, fine dining and entertainment. Las Vegas which bills itself as the �Entertainment Capital of the World� is famous for the number of casino resorts and associated entertainment. AFP PHOTO/Jewel SAMAD (Photo credit should read JEWEL SAMAD/AFP/Getty Images)

      Macau has overtaken Switzerland in the wealth stakes, being named the world's fourth richest territory by the World Bank.
    • spc marketplace middle east ata atmar a_00010015.jpg

      Saudi Arabian Bateel brand is best known for its delectable dates but it now has more than a dozen cafes and a new bakery in the works.
    • Vantablack designed by Surrey NanoSystems absorbs 99.96% of all light. It however will not be the solution to the creating the world's ultimate slimming black dress! A dress made out of this material would render the curves and contours of the human body invisible and would leave the wearer looking like 'two dimensional cardboard cut-out.'

      A British nanotech company has created what it says is the world's darkest material. It is so dark the human eye can't discern its shape and form.
    • Jibo robot is designed to be an organizer, educator and assist family members. CNN's Maggie Lake met him and says she was impressed with his skills.
    • A picture taken on March 15, 2014 shows children playing at the sprawling desert Zaatari refugee camp in northern Jordan near the border with Syria which provides shelter to around 100,000 Syrian refugees. Syrian refugees in the seven-square-kilometre (2.8-square-mile) Zaatari camp in Jordan fear that President Bashar al-Assad's likely re-election this year will leave their dream of a return home as distant as ever. The brutal war in Syria between the regime and its foes shows no sign of abating and has killed at least 146,000 people since it erupted in mid-March 2011. And 2.5 million Syrians have fled abroad and another 6.5 million have been internally displaced. Jordan is home to more than 500,000 of the refugees.

      Sandwiched in between Iraq and Syria, Jordan's destiny seems to be one of a constant struggle for survival. John Defterios explains.
    • SHEFFIELD, ENGLAND - NOVEMBER 18: Queen Elizabeth II wears 3 D glasses to watch a display and pilot a JCB digger, during a visit to the University of Sheffield Advanced Manufacturing Research centre, on November 18, 2010 in Sheffield, England. (Photo by John Giles - WPA Pool/Getty Images)

      At the last football World Cup, it was all about 3D. This time around, it's nothing less than 4K.
    • An Iraqi worker adjusts a control valve at the Daura oil refinery on November 5, 2009 in Baghdad, Iraq. Iraq and a grouping of U.S and European oil companies Exxon Mobil Corp and Royal Dutch Shell PLC signed a $50 billion contract today to develop the West Qurna oilfield, two days after the Iraqi South Oil Company signed a technical service contract with Britain's BP and China's CNPC to develop the Rumaila oilfield. The Iraqi government is trying to attract foreign investment, especially in the oil sector, in hopes of reviving its war-torn economy. Iraq has the third largest oil reserve in the world but it is producing way below its potential. (Photo by Muhannad Fala'ah/Getty Images)

      Iraq produces 3.3 million barrels per day and has the world's fourth-largest oil reserves. But the current crisis is putting all this in danger.
    • Valves of gas pipe-line are seen in the gas station not far from Kiev on March 4, 2014. The European Union will help Ukraine pay the $2.0 billion it owes to Russian gas giant Gazprom, a top official said Tuesday, as part of an aid package reportedly worth more than one billion euros. AFP PHOTO/ ANDREY SINITSIN (Photo credit should read ANDREY SINITSIN/AFP/Getty Images)

      The gas standoff between Russia and Ukraine could have a knock-on effect on Europe. Explore this map to find out why is the EU nervous.