Stamp Duty Changes In Hong Kong Expected To Cool The Residential Property Market

A new Buyer’s Stamp Duty introduced for the residential property market in Hong Kong is likely to cool the sector, according to analysts, and if it doesn’t then more measures could be on the cards.

At the end of October, the Hong Kong government introduced the new BSD and extended and intensified the existing Special Stamp Duty (SSD).

Under the new policy, local and foreign companies as well as non-permanent Hong Kong residents have to pay an additional 15% BSD when buying homes in Hong Kong. Meanwhile, SSD has been extended for three years and rates have been raised from 15% to 20% for a resale within six months of purchase; from 10% to 15% for a resale within six to 12 months and from 5% to 10% for a resale within 12 to 36 months.

Following strong price growth in 2012, to date, the residential market is now likely to cool as a result of the new measures, according to the latest monthly report from Knight Frank.

It shows that the number of residential transactions totalled 71,012 in the first 10 months of 2012, but is expected to reach only 75,000 by the end of year, compared with 84,442 transactions in 2011.

Demand from speculators and investors is expected to be checked by the increased policy risks and investment costs. ‘This will be particularly apparent for primary residential projects, where a significant proportion of buyers are companies or mainlanders,’ says the report.

‘Developers, facing suppressed demand, are expected to become less aggressive while setting prices for pre-sale residential units and adjustments to selling strategies are also anticipated,’ it adds.

 

It also says that secondary home owners are likely to hold on to their properties or release them onto the leasing market, given the current low interest rate environment and new stamp duty policies. Potential buyers who cannot afford the high prices, or are waiting for a price drop, are expected to shift towards the leasing market. Therefore, the leasing sector is expected to remain strong with sustained supply and stable demand.

‘Speculators, having been deterred by the new policies, have shifted their focus towards non-residential sectors such as commercial, industrial and even car parking space. A significant increase in car parking space transactions was witnessed after the enforcement of the policy,’ says the report.

‘The trend for residential price movement will be uncertain in the short term. However, after the market has digested the negative impact of the new policies, we expect demand from buyers, including mainlanders and speculators, will return in the medium to long run. Prices of luxury homes should remain stable or experience mild price growth, due to limited supply,’ it explains.

‘However, we believe the government may launch further cooling measures if home prices start to rise significantly, again,’ it concludes.

New Property Tax Not Impacting On Luxury Real Estate Market In Italy

A challenging economic outlook in Italy has led to a more cautionary attitude amongst property buyers but the world’s wealthy still consider it to be one of the most desirable second home hotspots. 

Unlike the UK, the US, Ireland and Spain, Italy did not experience a housing market bubble prior to the financial crisis. Although official data reports that mainstream prices are only 10.5% lower than their peak in the second quarter of 2008, most analysts acknowledge that mainstream prices have dropped by around 30% over this period.

According to an analysis by Kate Everett-Allen, from Knight Frank’s international research team, the absence of a housing bubble meant Italy’s banks coped relatively well with the credit crunch in 2008/2009 but strains appeared in 2011 when the Eurozone’s sovereign debt crisis deepened and the banks’ large holding of Italian public debt left them exposed.

Italy’s public debt to GDP ratio now stands at 120% and it is forecast to be 2014 before GDP growth re-enters positive territory.

However, Italy’s prime residential market has outperformed its mainstream counterpart. The €3 million plus market is in good shape and sales volumes are healthy. But in some markets such as Tuscany, Umbria and Florence the €450,000 to €1 million price bracket is sluggish as buyers in this market segment tend to be more heavily reliant on finance.

 

‘Nonetheless, there remains strong demand for development products below €1 million and for many international buyers, Italy’s established prime locations offer a more secure second home option without the risk that many emerging European markets present,’ said Everett-Allen.

‘A weaker euro in the first half of 2012 made very little difference to the volumes of sales but interest from non-Eurozone buyers improved once the euro reached 1.20 against the pound,’ she added.

The Knight Frank research shows that buyers from the UK, the US, Belgium, Denmark, the Netherlands and Russia are the most active. ‘The one issue that connects these buyers is their level of wealth, many are increasingly internationally mobile with multiple residences globally,’ said Everett-Allen.

Knight Frank does not expect the new IMU tax introduced in late 2011 by Mario Monti’s new government of technocrats as part of a strict austerity programme to have much impact on the luxury property market. For the first time Italians now have to pay tax on all their properties, including their primary residence and the tax also applies to non-resident second home owners.

‘We do not expect the IMU tax to have a significant impact on Italy’s luxury housing market for two reasons. Firstly, because the sums remain relatively small. Home owners are due to pay 0.4% of the cadastral value on a primary residence and up to 1.06% on a second home. Secondly, despite the IMU tax changes Italy’s purchase costs and annual property charges continue to compare favourably with some of Europe’s other prime second home destinations,’ explained Everett-Allen.

She added that foreign buyers who use a company structure to purchase property are advised to seek tax advice as they are now potentially subject to higher taxes.

Noticeable Decline In Interest In Buyers For Top End UK Properties Due To Tax Changes

Tax changes have resulted in a noticeable decline in interest in property worth over £2 million in most regions of the UK, it has been revealed.

The highest activity in the prime property sector in the third quarter of 2012 has been in the £1 million to £2 million price range, according to the Buying Solution, the independent buying consultancy of Knight Frank.

The super wealthy are turning their backs on London and looking to the Home Counties where there has been a substantial increase in transactions in the £15 million plus range and good quality farm land is also selling well.

‘In both the London and country markets, there has been a noticeable falling away of interest in property above £2 million which is almost certainly due to the stamp duty increases announced in the March 2012 Budget. We believe that a number of buyers are sitting on their hands awaiting the outcome of the proposed annual Capital Gains Tax charges on properties priced above £2 million owned by non-natural persons,’ said Philip Selway, managing partner and head of London at the firm.

‘This does not appear, however, to deter wealthy overseas buyers, who continue to drive the prime central London market with investment as well as lifestyle purchases. The continued global financial uncertainty, particularly in a number of European countries, means that the UK is even more attractive to the overseas buyer, not only because of history and culture, but also because of political stability and a secure legal system,’ he explained.

‘In the long term, I don't expect that increased property taxes will deter buyers; they might lower values around the £2 million price range perhaps, but people do tend to carry on as normal once they have assimilated tax changes into their financial structures,’ he added.

In the Home Counties of Berkshire, Buckinghamshire, Surrey, South Oxfordshire, and West Sussex the majority of the market activity has been focused on property priced up to £1.5 million. Nick Mead, associate in the Home Counties, said that most buyers are needs driven UK buyers who are moving out of London for schooling and more space.

 

He pointed out that the £2 million to £3 million market has been significantly affected by the increase in stamp duty, and the proposed mansion tax has further dampened this market. ‘We're seeing a continued flurry of price reductions which, if anything, has grown in recent weeks. Ultimately, those who are likely to bear the brunt of a mansion tax are likely to be those who are already suffering the effects of middle class poverty, that is the asset rich and the cash poor,’ he said.

‘The sooner plans for the mansion tax and proposed higher rate council tax bands are finalised, the better, as the uncertainty and speculation is weighing heavily on the market. On a short to medium term basis, it is likely to actually lead to a reduction in the revenue that the exchequer might receive due to a fall in transactions,’ he added.

Mark Lawson, partner and head of the Home Counties team, added that the top end of the market has been incredibly active. ‘To our knowledge, in 2010, there was just one transaction at £15 million plus, last year there were eight in total, and this year, there have already been 12,’ he said.

‘This increase in transactions has been fuelled by international buyers who are seeing better value outside of prime London with prices approximately £1,000 per square foot for a top quality property in the Home Counties, compared to more than £6,000 per square foot in prime central London,’ he explained.

In the Southern region covering the M3/M4 corridors including West Berkshire, Hampshire, Wiltshire, Dorset and Somerset, there have been fewer transactions that the third quarter of last year.

In the Cotswolds and central region covering Gloucestershire, Oxfordshire, Warwickshire, Northamptonshire, Herefordshire, Worcestershire, the market is more buoyant than a year ago.

  

‘We are seeing most activity in the £1 million to £2 million price range which is unsurprising in light of the increase in stamp duty. There have been some significant sales at the £5 million plus level which just shows that best in class properties will always create interest, especially if within a one to one and a half hour journey from London,’ said Bobby Hall, head of the Southern region.

‘However, the biggest issue as we head into the autumn market is supply, and what does come onto the market needs to be correctly priced to spark interest. Buyers are prepared to purchase, but only if the price is right. If a house looks expensive, it can be quickly dismissed,’ he pointed out.

He explained that in towns such as Oxford and Cheltenham the market is still pretty strong due to the usual pull of good schooling. Further out where there are now fewer second home buyers there are some good deals to be had.

Good quality farmland is still selling well despite the weak harvest this year, according to Mark Lawson, the firm’s head of Home Counties and Country Estates, partly due to their being less on the market this year compared to last year, leading to a shortage of good quality farmland to purchase.

He added that as there are still good tax advantages for investing in farm land it is still deemed a good investment.

Holiday Swap Firm Offers Alternative to New Taxes For Foreign Owners in France and Switzerland

Overseas property owners in France and Switzerland should be looking for alternative ways to use their properties to avoid unnecessary tax charges and comply with new legislation, it is claimed.

Recent changes in Swiss and French property law might have an important impact on many second home owners in alpine resorts, according to Snow Swappers, a holiday swapping club for owners in ski resorts.

Earlier this year a Swiss referendum voted for a new law to restrict the number of second homes in each commune or municipality to no more than 20%. The reasoning behind the change is not to keep out foreign buyers, 60% of second home owners in Switzerland are Swiss nationals, but more about restricting the expansion of secondary residences in tourist locations, especially in the Alps.

 

There are over half a million second homes in Switzerland, equivalent to approximately 12 % of the overall housing stock and in the alpine cantons of Valais, Grison and Ticino the proportion of second homes is between 60 and 80%.

Owners of property in neighbouring France are facing changes in tax laws which will mean an increase from 20% to 35.5% in tax on rental income from applicable properties that is being  back dated to January 01. 

For owners from outside the European Union the situation is even worse, with tax rising to 48.8%.

There are also changes to Capital Gains Tax in France which means you must own a property for more than 30 years, as opposed to the previous 15, to be exempt from CGT.

Snow Swappers says that by arranging a swap with another property owner, owners could be skiing in Whistler, Verbier or Chamonix without paying anything for accommodation costs. And because there is no money changing hands, there's no tax deductible.