In an effort to keep the booming housing market under control, and within reach for the average resident, Hong Kong has introduced a new tax for foreign buyers. This new stamp duty imposes an additional tax of 15% on purchases made by non-Hong Kong residents. Hong Kong has seen property values double in the last five years. Even in 2012 the rate of change has been astounding. The price of a small apartment rose 1/5th in the first nine months of this year. Already one of the most expensive real estate markets in the world, foreign interest put homeownership squarely out of reach for most of its citizens. In 2008, non-residents bought one in seventeen newly built properties in Hong Kong. Last year, that number jumped to one in five. China, of course, is the major force, and investors from the Mainland continued to drive up housing prices, until finally, this week, Hong Kong had enough and introduced discouraging legislation.
The same thing is happening last year in Singapore. The city introduced an additional 10% stamp tax on foreign investment. Singapore already had an existing stamp tax called the Buyer’s Stamp Duty (BSD). It is between 3 and 10% and applicable to Singaporeans, Permanent Residents and foreigners. An additional 10% tax was placed on foreign investment of residential property. Local residents will be taxed an additional 3% on their second and third homes, but not their primary residence. According to the Ministry of Finance and National Development the BSD and the Additional Buyer’s Stamp Duty (ABSD) will “promote a sustainable residential property market where prices move in line with economic fundamentals.”
These new duties slice heavily into the profit potential for overseas investors, and, ideally, will curb non-resident speculating and stabilize the market for local buyers. Both Singapore and Hong Kong have been hot commodities in the last five years. The economic downturn, European crisis and record low interest rates have turned investors away from the stock market in search of more stable and sizable returns. The unique geography of Singapore and Hong Kong ensured a steady demand for the limited, high-density supply. There’s simply nowhere left to build. However, with the addition of these stamp duties, foreigner buyers are no longer welcome in Hong Kong and Singapore.
Even London has introduced a 15% stamp duty on residential property owned by a corporate entity that is greater than GBP 2 million, effectively, repelling foreigners who are often interested using this route to maintain privacy.
With outsized stamp duties cutting off investment opportunities in Asian cities, luxury homes in Manhattan and Miami seem more appealing than ever. In Manhattan and Miami, foreign ownership is not feared. It is encouraged.
For further reading about Foreign Buyers: