Angelina Wong 4C (34)
Peggy Woo 4C (35)
Source: South China Morning Post
Date: 27th November, 2010
Newspaper Article
Stamp duty increase prompts warning of “collateral damage”
A war of words has broken out between the government and the
representative of major developers over new anti-speculation
measures in the property market.
Chief Executive Donald Tsang Yam-kuen said yesterday the new
stamp duty was working.
But Louis Loong Hon-biu, secretary general of the Real Estate
Developers Association of Hong Kong (REDA), countered that
genuine end-users could suffer "collateral damage" from the new
measures.
"We understand the government is trying to curb the speculation in
the property market," Loong said after meeting developers.
"We noticed there is speculation in the market. And the government
has to tackle the problem.
"But we are concerned about the collateral damage that the
measures may cause to people who are forced to sell their
properties due to other, unforeseen circumstances."
(Explanation 3)He said the measures seemed to be proving
effective for now as property sales fell this week.
(Explanation 1)The new rules impose an extra 15 per cent on
stamp duty for flats bought and sold within six months, 10 per cent
for those sold between six months and a year of purchase and 5
per cent for those sold one to two years later. Speaking at the Boao
Youth Forum at the Hong Kong Convention and Exhibition Centre,
Tsang said the initial effect on the property market was to halt
"excessively malicious speculative activities" and to reduce the risk
of a bubble forming.
(Explanation 2) He said the measures were also designed to help
genuine end-users.
The Hong Kong Monetary Authority yesterday announced new
mortgage loans drawn down in October fell 26 per cent to HK$25.1
billion compared with September.
Approval of new loans fell 2.2 per cent to HK$30.8 billion.
Property agents believe the fall in new mortgages was due to the
cooling measures in August.
Financial commentator David Webb criticised the new government
measures as possibly breaching the Basic Law and creating
unintended victims.
"Apart from catching short-term investors, the special stamp duty
would catch homeowners who either wish to sell or are forced to
sell for whatever reasons, such as the owner who loses her job and
cannot pay the mortgage or get a mortgage to complete a home
purchase," he wrote on his website.
He believed the stamp duty would have a negative impact on
liquidity.
(Explanation 4)"With reduced liquidity in the property market, there
will be less work for estate agents, conveyance lawyers and the
related jobs in advertising that are linked to the volume of the
secondary property market. Less work, fewer jobs, lower pay.”
Separately, Loong, of REDA, said the association had received the
letter from the Transport and Housing Bureau regarding remarks
made online by Cheung Kong (SEHK: 0001) Real Estate director
William Kwok Tze-wai over the sale of the developer's new flats on
the day the new stamp duty was announced.
Kwok said the flat transactions would not be affected by the new
measures.
Loong said it had received the reply from Cheung Kong and
REDA's supervisory committee would launch a hearing to decide
whether a reprimand was warranted.
"Our committee members will study the case and reach a
conclusion shortly," he said.
Description of the issue
The new anti-speculation measure in the property market by
imposing extra stamp duties on flats sold within a short period of
time has aroused public concern especially the representative of
major developers. It has become a controversial issue in society.
Initially, the government adopted this measure as a means to
halt excessively malicious speculation activities and to catch
short-term investors. The government intervene the property
market in a hope to cease the skyrocketing property prices and to
assist the genuine end-users to buy their properties.
Yet, it turns out that this measure reduces the liquidity in the
property market and people engaging in sectors related to the
property market, like estate agents, conveyance lawyers will lose
their jobs or get a lower salary.
Explanation
1. As an extra stamp duty is imposed on flats sold within a short
period of time which means that the cost of short-term property
speculation increases, quantity demanded for short-term property
speculation decreases, holding other factors constant. It is
represented by a movement along the same demand curve.
2. After the implementation of the policy concerning extra stamp
duties, people expect future property price to decrease. Therefore,
they delay their purchase. The demand for properties decreases.
The demand curve will shift left.
At the same time, property owners consider stamp duties as the
cost of selling their flats in the second-hand market. After the
implementation of the policy, cost increases so the supply of flats
decreases. Supply of properties decreases. Supply curve will shift
left.
As stated in the newspaper article, such measure benefits
genuine-end users which means that the price of properties
decreases. If the decrease in demand for properties is larger than
the decrease in supply of properties, the equilibrium price and
equilibrium quantity will decrease. Genuine end-users can then
purchase properties at a lower price.
3. As stated in the news, in the week following the adoption of
extra stamp duties, properties sale, which is known as the total
revenue, decreases.
Original total revenue = P1 x Q1
New total revenue= P2 x Q2
Decrease in total revenue= P1 x Q1 – P2 x Q2.
4.
Estate agents are derived demand of properties. When the demand
for properties decreases, demand for estate agents decreases. The
demand curve will shift left.