Introduction

Home prices are always a concern for the public and it has long been criticized that the property market in Hong Kong is not developing in a healthy manner. The property prices kept soaring from one peak to another over the past few months in all residential areas despite a wide range of measures announced by the Government and the Hong Kong Monetary Authority respectively in June 2011. For a detailed discussion of the measures, please refer to our Newsletter published in June 2011.

All these circumstances attracted the Government’s attention.On 30 August 2012, the Government announced 10 short-term and medium-term initiatives to boost housing supply with a view to cool down the red hot property market. The short-term measures will be implemented in the coming 6 to 12 months.

Short-term measures

1.Sell residual Home Ownership Scheme (the “HOS”) flats. 830 unsold HOS flats, including 825 in Tin Shui Wai, will be sold early next year.

2.Sell all of the My Home Purchase Plan (the “MHPP”) flats. MHPP will be amended by changing from rent-to-buy scheme to sell directly. The first batch of 1,000 flats in Tsing Yi will be provided at the beginning of 2013.

3.The Lands Department will expedite pre-sale approval applications for uncompleted flats, around 9,000 residential units currently, to meet market demand. 65,000 residential units will be offered to the market in the next three to four years.

4.Land to build 2,650 private flats will be sold in the Government Land Sale Programme in the 4^th quarter of this year (October to December).

5.Convert the Chai Wan Industrial Building into 180 public rental units from the middle of 2013 with a view to satisfy the urging needs of “single person” unit and “one bedroom” units in the urban area.

Medium-term measures

1.Continue to sell the residual 4,000 MHPP flats with discount and study a long-term and sustainable housing strategy to help the target beneficiaries of the MHPP to buy their own flats.

2.Allocate 480 units under the Urban Renewal Authority’s Kai Tak unit exchange programme to the Housing Authority to develop HOS flats for completion in 2017.

3.Convert an open space in Cheung Sha Wan to build 2,300 public rental units. On the public housing side, over the next five years, the Government aims to provide a total of 75,000 units.

4.Rezone 36 government, institution, and community sites to provide 11,900 public and private flats.

5.Study the experience of revitalizing or changing industrial buildings into residential flats and investigate the restrictions imposed by the Buildings Ordinance and other Town Planning regulations.

Long-term Housing Strategy Review

A two-tier institutional framework will be immediately formed to review Hong Kong's long-term housing strategy with Secretary for Transport & Housing, Professor Anthony Cheung, chairing a steering committee (the “Committee”). An inter-departmental working group, comprising relevant Government bureaus and departments, will be established under the Committee. The working group had convened its first meeting on 5 September 2012, while the Committee had met for the first time on 15 October 2012. A report and consultation paper will be published in the second half of next year.

Two sites for Hong Kong People Only

Other than the short term and long term measures, on 6 September 2012, the Government announced a pilot scheme to sell flats only to Hong Kong permanent residents at two new Kai Tak developments. This is commonly regarded as the “Hong Kong property for Hong Kong residents” policy. The two sites will be sold in the first quarter of 2013 and they will provide around 1,100 residential units.The target purchasers of the flats in the two sites are individual Hong Kong permanent residents.The flats cannot be held by company or resold to non-Hong Kong permanent resident within the first 30 years after the first purchase.

Increased Special Stamp Duty and Buyer’s Stamp Duty

On 26 October 2012, the Government further introduced two extraordinary measures to combat short-term speculation in the residential property market and stabilize market demand. The first measure is to increase the Special Stamp Duty rate and extend its restriction period from two years to three. The duty payable for resale (i) within 6 months, (ii) more than 6 months but not more than 12 months and (iii) more than 12 months but not more than 36 months will increase to 20%, 15% and 10% respectively.

The second measure is to introduce a Buyer's Stamp Duty. Hong Kong Permanent Residents will not be subject to the new tax. Other buyers, including non Hong Kong Permanent Residents, local and non-local companies, are required to pay the newly introduced Buyer's Stamp Duty at 15% on top of the existing stamp duty. It should be noted that the Special Stamp Duty will also be charged on the resale of the property within three years.

Mortgage tightening measures

With a view to tighten the underwriting criteria for the banks to reduce their credit risks, the Hong Kong Monetary Authority (“HKMA”) announced another round of mortgage tightening measures on 14 September 2012. It is the fifth time the HKMA has tightened up mortgage policies since October 2009.

At the time of loan application, if the applicant has already borrowed or guaranteed outstanding property mortgage loans for one or more properties, banks are required to adopt the following measures:

Firstly: If mortgage loan is assessed based on the debt servicing ability of a mortgage applicant, the maximum debt servicing ratio shall be lowered from the current 50% to 40%. However, an applicant with just one property with outstanding mortgage loans will not be affected by this new measure if the new mortgage loan is for self-occupation purpose, or for the replacement of an existing mortgaged property.

Secondly: If mortgage loan is assessed based on the net worth of a mortgage applicant, the maximum loan-to-value (“LTV”) ratio shall be lowered from the current 40% by 10 percentage points to 30%.

Thirdly: If the major income of the mortgage applicant is not derived from Hong Kong, the applicable maximum LTV ratio shall be lowered by 20%, instead of the current 10 %.

Fourthly, the maximum loan tenor of all new property mortgage loans is limited to 30 years.

The above measures took effect on 14 September 2012 and applicable to all properties including residential, industrial or commercial.Loan applications, however, with provisional sale and purchase agreements of the property signed on or before 14 September 2012 will not be affected.

Conclusion

The Government had introduced short term measures to increase the land supply and new measures to combat short term speculation in the residential market. The introduction of the Buyer’s Stamp Duty for residential properties is also aimed to increase the supply of residential property to local home-buyers.

In the long run, the Government promised to increase the land supply and strive for a steady land provision programme.The Government had outlined the blueprint of Hong Kong’s future housing arrangement in the press conference of the new 10 measures. There will be four categories of housing: First, public rental units; Second, HOS flats; Third, a newly introduced subsidized housing programme similar to MHPP; Last but not least, the private flats.

At the end of the said press conference, Chief Executive CY Leung pledged that the Government will closely monitor the property market and will implement further measures whenever it is necessary.