Highlights on the Budget 2010 - 11

The Budget 2010-11 has been announced by the Government today, the following highlights some of the measures related to the local real estate market. The anticipated impact to the local residential property market is provided by Colliers International in blue.


Measure 1:
Raise stamp duty on transactions of properties valued over HK$20 million from 3.75% to 4.25%. Buyers will not be allowed to defer stamp duty payment.

Colliers International:
- With the proposed increase of stamp duty, prospective buyers will inevitably have to pay an additional transaction cost for properties valued at HK$20 million or above. Assuming a property valued at HK$20 million, the percentage increase of stamp duty is 13%. It is a significant increase with reference to the anticipated increase in consumer prices in the order of 1-2% in 2010.

- Notwithstanding the significant increase of the money amount of stamp duty, the impact is going to be confined within a small number of units at the upper end of the local property market. With reference to the current price levels in a number of mass residential estates, the above price bracket is basically referred to the upper-end of the local property market. Since the secondary market prices for most housing units are currently fetching at HK$10,000 per sq ft or below, the implied unit size of the HK$20 million bracket will be 1,700 sq ft or above (i.e. Class E by the definition of the Rating and Valuation Department of the HKSAR Government). According to the official statistics, the total stock size of Class E units was 23,268 units as of 2008, representing 2% of the total residential stock in the whole territory.

- According to the Government, the purpose of the increase is to limit excessive speculation in the trading of the above properties and reduce the risk of creating a property bubble. Overall, it is our view that the measure is not going to create a major negative impact on the local property market. Primarily, the measure is purposely made in reducing demand rather than increasing supply. Given the fact that the current demand is driven not only by the local wealth-off group but also the ever-growing number of mainland buyers, property prices will continue to edge up, particularly when the market is facing a lack of new supply. Regarding new supply, the total stock of Class E units increased mildly by less than 2% over the past ten years while the total market expanded by 13% during the same period.

- Although there is no complete supporting statistics on the level of short-term trading activities, it is our view that the level speculation is not overly excessive according to our observations on the level of conformer transactions. During 2008 and 2009, the percentage of conformer transactions represented 3.0% and 1.7% of the total number sale and purchase agreements signed in the residential market. Both numbers are significantly below the 11% seen in 1996 when the market was full of speculators.

- Overall, the measure might create a short-term consolidation on the number of sales transactions in the targeted market segment since individual buyers might prefer to wait and see over the near term. However, the upward price and volume trend will resume when the market eventually absorbs the increase of stamp duty and a large number of genuine buyers is out there to buy for long-term hold.


Measure 2:
Waive rates for 2010–11, capped at HK$1,500 per quarter. Ninety per cent of domestic and 60% of non-domestic properties will not need to pay rates.

Colliers International:
- The above measure will benefit the bulk of the existing vendors since 90% of the domestic properties will not need to pay rates. However, it is not the key factor in fostering the growth of future demand.


Measure 3:
The Government has drawn up the Application List for 2010-11 for application by the market. However, depending on market conditions, the Government will put up several urban residential sites in the List for sale by auction or tender in the coming two years if they have not been triggered.

Colliers International:
- The above modification on the existing Application List mechanism can help increase the supply of land. However, the crucial point is that the market will be very sensitive to take anything negatively if there is lukewarm response to the auction or tender for any reason, and/or subsequent withdrawal of land sale. It is our view that the Government will do this very carefully since it is not the Government’s intention to increase land supply dramatically at discounted prices.


Measure 4:
Number of completed private residential units will rise to 14,300 in 2010.
Estimated number of units available in the next three to four years is 53,000.

Colliers International:
- With reference to the historical average completion rate of about 20,000 small to medium size units per annum during the period between 1998 and 2008, the completion rate in 2010 remains 29% below its long-term average. Going beyond 2010, the estimated 53,000 units in three years represents 17,600 units per annum. Again, this will be a lower than average completion rate.

- In addition, although the level of new supply will increase in 2010 and beyond, the realistic impact on the supply side of the market is the actual number of completed or incomplete units offered by private developers for sale at a certain point of time.

source : Colliers