Hong Kong scraps decade-old property restrictions to boost flagging economy

By Laura He, CNN

Hong Kong (CNN) — Hong Kong has announced a slew of measures to boost its real estate sector, including the removal of decade-old restrictions that were introduced to prevent a property bubble, as part of its effort to revive an economy that has been hurt by a record exodus of talent and an economic slowdown in mainland China.

Paul Chan, the financial secretary for the semi-autonomous Chinese city, said in his annual budget speech on Wednesday that the city would cancel all buy-side restrictions for residential homes and waive stamp duties on property transactions. The cancellation will take effect immediately.

“We consider that the relevant measures are no longer necessary amidst the current economic and market conditions,” Chan told the city’s legislature.

The canceled taxes include a 7.5% stamp duty on buyers who are not permanent residents in the city, a 7.5% stamp duty on those purchasing a second home and a 10% to 20% stamp duty on those who sell their homes within two years of the purchase.

These taxes had been introduced as early as 2010 to cool the city’s once red-hot property market, a pillar of the economy. At the time, officials were worried about a housing bubble, in which prices rise above what is commonly believed to be reasonable or sustainable.

The government will also ease property lending policies to boost housing demand.

Real estate and related industries play a key role in Hong Kong’s economy, accounting for as much as a fifth of the city’s gross domestic product (GDP). Income from land sales comprise about one fifth of the government’s fiscal revenues.

But since last year, property prices have entered correction territory. By January, the government’s housing price index had fallen for nine straight months, the longest streak of declines in two decades. As of last month, it was down 23% from its peak in September 2021.

In Wednesday’s budget speech, Chan also said the government would set aside 1.09 billion Hong Kong dollars ($139 million) in funding to support the tourism industry, including organizing fireworks and drone shows each month at Victoria Harbour.

Hong Kong’s economy has struggled to regain momentum since it reopened after more than two years of self-imposed Covid isolation. In 2023, its GDP grew 3.2%, thanks to a low base in 2022, but it fell short of market expectations. An initial boom in tourism and consumption fizzled out within months after its reopening.

Other than a sluggish housing market, Hong Kong is also grappling with a record exodus of talent and a battered stock market, both of which could worsen as relations between Beijing and Washington become frostier.

Hong Kong’s stock market, where many of China’s largest and most important companies are listed, has become less popular with international investors.

Its benchmark Hang Seng Index fell 14% in 2023, making it one of the worst performing indexes globally. Late last year, the city’s stock exchange was overtaken by the National Stock Exchange of India (NSE) as the world’s seven largest bourse.

Hong Kong’s status as the financial hub of Asia is also under threat, with the government pushing to enact a controversial homegrown national security law that could have deep ramification on international businesses.

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Kathleen Magramo contributed to reporting.