Special Stamp Duty ("SSD")'

With the announcement by the US Federal Reserve on the launching of the second round of "quantitative easing" amounting to US$600 billion in November 2010, more funds are expected to flow to the emerging markets, in particular Hong Kong, given the strong economic fundamentals and absence of capital control here. The abundant liquidity and ultra-low interest rates will thus continue for an extended period, and the risk of a housing bubble has thus intensified further. In order to curb speculation, ensure the property market's stable and healthy development, benefit real homebuyers, the government introduced a Special Stamp Duty ("SSD") on residential properties of all values at the point of resale if the properties are acquired on or after November 20, 2010 and resold within 24 months after acquisition, including confirmor transactions. This extraordinary measure is effective in dampening short-term speculation in property market and its effect is well reflected from the big drop in residential property sales turnover by 50% to 70% at the weekend right after the introduction of SSD. The liability to SSD will arise if the following conditions are met: (i)The transaction involves a residential property; (ii)The property was acquired by the seller on or after 20 November 2010; and (iii)The property was sold by the seller within 24 months from the date of acquisition. In other words, transfer of any residential property acquired before 20 November 2010 will not be subject to SSD, irrespective of the length of the holding period before disposal. In general, the provisional agreement is signed before 20 November 2010, but the formal agreement is signed after that date, it would be subject to SDD. However, if it is provided in the provisional agreement that legal action would be instituted against the party not completing the transaction, it will not be caught by the proposed amendment. Moreover, the SSD is calculated based on the stated consideration for the transaction or the market value of the property, whichever is higher, at the following rates for different holding periods by the seller before the disposal -. (i)15% if the property has been held for six months or less; (ii)10% if the property has been held for more than six months but for 12 months or less; (iii)5% if the property has been held for more than 12 months but for 24 months or less. In addition, exemptions for the SSD are proposed in the following cases: – (i)Nomination of a close relative to take up the assignment of a property under a sale and purchase agreement (“close relative” means parent, spouse or child); (ii)Sale or transfer of properties to close relatives; (iii)Sale or transfer of properties due to bankruptcy/involuntary winding-up; (iv)Sale or transfer of properties between associated companies; and (v)Sale or transfer of properties to the Government. SSD is not a charge on gain or profit. As a levy of stamp duty, the SSD is payable irrespective of whether the property is sold at a gain or at a loss. The feedback from the mass on this policy is controversial. To speculators, this policy will undoubtedly increase their transaction costs which will help to curb their speculative activities and dampen the sharp surge in property prices. However, the substantial reduction in second-hand housing transactions and unexpectedly change of policy will inevitably increase the investment risks of investors and end-users. Moreover, the shrinkage of property market and decline in property prices will eventually trigger a disastrous fall in property value which will result in negative equity. SSD is ,indeed, a double-sided knife.