Commercial Property Sales

Gov’t Scraps Extra Stamp Duty On Commercial Property Sales

HONG KONG – In a bid to revive the city’s commercial property market that has been dealt a heavy blow by the COVID-19 pandemic, authorities in Hong Kong are set to axe the additional stamp duty affecting sales of such assets, reported Bloomberg on Wednesday afternoon (25 November, SGT).

Hong Kong’s Chief Executive Carrie Lam announced today (25 November) that the government will scrap the extra stamp duty for non-residential properties effective tomorrow (26 November).

In 2013, the authorities implemented the additional stamp duty of up to 8.5 percent based on a property’s value to bring down the high prices back then. Even without this levy, commercial transactions are still subject to the standard stamp duty of up to 4.25 percent.

This is not the first time that the territory’s government introduced measures to invigorate the commercial property sector amidst an economic downturn and the virus outbreak. In August, the Hong Kong Monetary Authority (HKMA) increased the Loan-To-Value (LTV) ratio from 40 percent to 50 percent for those borrowing money to buy commercial real estate, such as office space.

Hong Kong used to be one of the most vibrant commercial property markets in Asia, with prices typically setting world records. That is before the anti-government protests occurred, and the situation was exacerbated by the pandemic.

As such, commercial property deals in the city plunged by about 62 percent year-to-date as compared to the same period in 2019, based on a recent report by Real Capital Analytics. Comparatively, Asia Pacific as a whole suffered a smaller decline of 31 percent in transaction volume.

In a report by the South China Morning Post (SCMP) on Wednesday morning, property consultancy CBRE said the abolition could spur deal-makings, that is if both stamp duties are withdrawn.

“If the double stamp duty is removed, transaction costs will be substantially lowered,” said CBRE’s Research Head for Hong Kong and the Greater Bay Area Greater Bay Area, Marcos Chan. “The drop in capital values with low holding costs will create some triggers for commercial property investment.”

Still, even before the scrapping of the additional stamp duty, there was anticipation that the government would do so after HKMA raised the LTV caps. And even before Carrie Lam’s latest announcement, commercial transactions rebounded significantly this month due to this expectation.

In fact, there were 318 commercial and industrial property deals during the first 22 days of November 2020 collectively worth HK$13.74 billion (US$1.77 billion). In comparison, the same period in 2019 only witnessed 208 transactions with a combined value of HK$2.62 billion.

Among the notable office deals this month was the sale of Cityplaza One for HK$9.85 billion.

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