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Hong Kong Scraps Property Curbs and Raises Taxes for Highest Earners

Hong Kong has decided to remove cooling measures in an attempt to revitalize its sluggish residential market and provide additional support for tourism, forming part of a comprehensive plan to reinvigorate the struggling financial hub.

Financial Secretary Paul Chan announced the immediate cancellation of measures aimed at curbing housing demand, stating that these policies are no longer necessary given the current economic and market conditions. The move was part of a broader initiative that outlined around HK$1 billion (S$171.9 million) in spending on tourism measures, including fireworks displays and efforts to host more mega events.

The Hong Kong Monetary Authority (HKMA) also relaxed mortgage rules, suspending stress tests and allowing some homebuyers to make property purchases with smaller down payments. Additionally, the government revealed plans to increase taxes on high earners to reduce the budget deficit.

The decision to ease property measures comes as confidence in Hong Kong has declined due to a seven-year low in home prices, erosion of freedom of expression through national security measures, and a significant decline in the stock market. The city has been grappling with high interest rates and the impact of China’s economic slowdown, hindering its recovery from the pandemic-induced slump.

The Hang Seng Properties Index responded positively to the news of property cooling measure removal, rising by 2.6 percent. Real estate companies like New World Development and Henderson Land Development also experienced notable gains.

The HKMA’s measures included the suspension of a stress test for residential mortgages that required borrowers to meet a certain income level to cover potential interest rate increases. The authority also allowed buyers to borrow more for purchasing more expensive homes by adjusting the maximum loan-to-value ratio.

Previously, non-residents faced a combined 15 percent tax on property purchases, while resident buyers with existing homes were subject to a 7.5 percent levy. The new measures are expected to breathe new life into Hong Kong home sales, according to analysts, as they address concerns such as high borrowing costs and a weak economic outlook that have deterred potential buyers.

The impact of these tax cuts may be modest, as observed after previous easing measures last October, but any improvement in the housing market could aid revenue generation from land sales, easing the financial strain on the city. The government had refrained from selling residential or commercial land plots in the first quarter due to weak demand from developers.

Starting in April, a two-tier tax system will be introduced, taxing income up to HK$5 million at 15 percent and anything beyond that at 16 percent. This is expected to affect approximately 0.6 percent of taxpayers, bringing in an additional HK$910 million in revenue annually.

The Business Times

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