Monday, January 19, 2015

How to calculate stamp duty for Hong Kong property purchase.

The calculation of stamp duty when buying HK property is something many people are confused about. I was asked about this some time ago, and there was also a recent comment on this topic on my Park Island blog topic: What will HK property prices do suggesting that the current tax system on HK property made Park Island quite desirable in terms of value for money.

I'll try to provide a guide to HK property stamp duty in a simple way for readers.

First, you need to look at the value of the HK property you are buying. 

Below are the stamp duties to pay on buying Hong Kong property. Legally, its the buyer who pays, although you can negotiate for the seller to cover some or all of it, but as far as the HK Inland Revenue Department is concerned the buyer must pay it:

Amount or value of the consideration
Does not exceed

$30,000 + 20% of excess over $2,000,000
$90,000 + 20% of excess over $3,000,000
$180,000 + 20% of excess over $4,000,000
$360,000 + 20% of excess over $6,000,000
$20,000,000$21,739,130$1,500,000 + 20% of excess over $20,000,000
Everyone must pay these costs, whether a HK citizen/HK PR, or a foreigner. The HK tax department provides some examples of calculating the Buyers Stamp Duty: Calculating BSD for HK property purchase
Next, you need to look at whether the buyer is a Hong Kong citizen or Hong Kong PR, or if the buyer of the HK property is a foreigner. (Unless you are a Hong Kong citizen or Hong Kong Permanent Resident, you will be considered a foreigner. A person typically becomes a PR in HK after having lived and/or worked in HK continuously for more than 7 years).
So, if you are a foreigner, you will need to pay an additional 15% tax based on the value of the property. That is on top of the tax I mentioned above, which all buyers need to pay.
So you can see there is actually a huge benefit in being a PR in HK insofar as buying a HK property is concerned. If for example you have 2 years to go before you get your PR, you would only really buy a HK property (and pay the 15% extra tax) if you thought the property value would rise more than 15% over that time (or 7.5% per annum). Unless you were confident of that, you would not buy. This measure was introduced to make it a little harder for mainland Chinese to enter the market, but as a consequence it has really harmed and is quite unfair to local expats who have lived in HK for some time, but not yet qualified for PR status.
Finally, if this is not complicated enough for you, there will also be a tax you need to pay if you sell within less than 3 years after buying. This should not bother longer term investors, but is designed to deter short term speculators.
This is called the Special Stamp Duty (or SSD).
Special Stamp Duty is calculated by reference to the value of the property at the following rates based on the holding periods of the property by the seller before he sells it:
Holding periodThe property was acquired
on or after 20 November 2010
and before 27 October 2012
The property was acquired
on or after 27 October 2012
6 months or less15%20%
More than 6 months but for 12 months or less10%15%
More than 12 months but for 24 months or less5%10%
More than 24 months but for 36 months or less-10%
So basically, I would suggest holding the property for a full 3 years after purchase, unless of course you thought the property was going to fall in value a rate greater than the selling tax you would need to pay for early disposal. Here are some examples on the SSD: Special Stamp Duty calculation examples

Wednesday, January 14, 2015

Picnic on Ma Wan

I was sent this picture of a picnic on Ma Wan which appeared in a local HK newspaper. Looks like it was taken outside of Cafe Roma.

Picnic on Ma Wan

Saturday, December 27, 2014

Hong Kong property market outlook 2015

How will the Hong Kong property market perform in 2015? 

Hong Kong Property 2015 Forecast
Before I share my thoughts lets look at how the market performed in 2014. 

In 2014, according to the Centaline Centa City Leading Index (CCI), property prices in HK, overall, rose around 14%, (with much of that gain taking place in the latter part of the year). 

So for a person wishing to buy who is currently out of the market, or for someone who had sold thinking the market had peaked, the 14% increase clearly represents a massive loss of money/opportunity.

This of course does not mean all properties in HK rose equally. Some types of property may have fallen up to 5% and some may have risen more than 20%, dependent on factors like quality, location, price range (ie higher priced property was more affected by Government cooling measures), appeal to Chinese property buyers, proximity to newly opened MTR stations, etc.

Bear in mind also that the 14% gain last year, which, if say leveraged at 50%, amounts to a 28% gain on capital invested (and that is without including any income received from the property, which was greater than the cost of servicing the mortgage).

Park Island property prices roughly tracked the overall average of Hong Kong property prices, also rising approximately 14% over the year.

So, 2014 turned out great for HK property investors, and now its on to 2015! 

What are "Hong Kong property analysts" predicting for 2015? Quite a number are predicting a "moderate decline" (eg up to 5% fall in prices). The conventional wisdom behind these type of predictions are all based on the basic premise that interest rate rises are on the way, and that this will lead to a greater cost of owning/investing in HK property, which in turn will lead to a decline in prices.

Examples of such forecasts include:

I can't help myself but comment a little on the Knight Frank 2015 property forecast. They predict Kuala Lumpur to be flat. Well I beg to differ, but the Kuala Lumpur property market is very likely to decline in 2015, due to oversupply, rising interest rates, rampant and lax lending (both to buyers and developers). It really does look poised to end pretty badly Malaysia in my opinion. I also predict declines in Bangkok, Singapore, and Jakarta (all of which Knight Frank predict will rise). I would stay well away from these countries in 2015, and if you are an investor there, I suggest you please consider selling. (I would also add  Manila as a place where I would suggest staying well away from and/or selling).

Bloomberg has an article which summarizes some of the key variables relevant to HK property prices quite well here:

Bloomberg Hong Kong property forecast, which reports that Alfred Lau, an analyst at Bocom International Holdings, predicts that HK property prices could fall "up to 20%".

Again, I can't help but comment - Mr Lau's "prediction" is indeed a theoretical possibility, but really is a totally useless comment, as rather than predicting a possible "worst case scenario" as Mr Lau did, what would be more helpful is to predict a "most likely scenario". Yes, Mr Lau, prices could fall up to 20%. They could also rise 20%. What investors really want to know is how much will HK property most likely rise (or fall) in 2015?.

Barclays, which has an almost laughable record for making incorrect and ridiculous HK property forecasts, with persistent ultra-bearish forecasts, again, appears to be trying to make headlines with "up to 30% declines forecast" type press releases. See for example the comments from Paul Louie, an analyst at BarclaysBarclays Hong Kong 2015 property forecast.

A more balanced perspective is taken by Morgan Stanley who writes "We are not expecting a boom-bust scenario.Strong end-user demand backed by low unemployment rates, increasing numbers of new marriages and babies continue to support the mass-market projects".
A few comments on analysts in general. If they really could accurately forecast the markets, would they be working as analysis do you think? Or would they be long retired, as multi-millionaires, with money made due to their great analytic ability? Most analysis that broadly broadcast, for financial gain, their predictions, both for property, and other types of assets, in my view, in general have very little credibility.
So, with that said, what do I think will happen to HK property prices in 2015? I already wrote an article on this earlier in the year: What-will-hong-kong-property-prices-do-in-2015?. I wrote there that:
"If I had to make a guess I would think that overall, prices will keep rising in 2015 in Hong Kong. I can't see interest rates rising at all until late 2015, and even then they will rise only very very slightly, if at all. Property cooling measures are very unlikely to be increased, and they are more and more being "priced in" which means that eventually, when they are removed, the removal of property cooling measures in Hong Kong will be very supportive of property prices. Indeed if removed too rapidly it may lead to a massive spike in prices. They will likely be removed very slowly and steadily (lock step with US interest rate increases), leading to stable price appreciation (which despite the political bantering about "affordable housing", is well recognized by the powers that be as being good for Hong Kong). Further, as the global economy recovers, Hong Kong stands to benefit strongly, due to its unique symbiotic financial relationship with China (which in turn is the "factory of the world)".
All in all, the factors going forward, weighed up, point to quite decent property price growth for Hong Kong next year."

I will reiterate what I wrote above, for emphasis. Property cooling measures are "priced in" and they will eventually be removed, lock-step with any US interest rate rise (which I now predict will likely come in towards the end of Q1 or some time in Q2 of 2015. If/when we get any US interest rate rise, we will see:
1 - Stamp duty on HK property reduced (likely applicable both to HK citizens and PR's at first). It will be interesting so see, politically, whether mainlanders are included or excluded from the benefits of reduced stamp duty. (I'm guessing they will be excluded unless they are PR's, but let's see).
2 - Maximum permitted borrowing ratios from banks increased. We are far far far from "normal" bank maximum bank lending ratios at the moment, due to super strict criteria and regulations imposed by the Hong Kong Monetary Authority.
What the Hong Kong Government, (and China) desperately wants for HK, perhaps even more so since the recent Occupy protests we had in HK, is social stability. That will not be achieved if property prices rapidly fall, or if prices rapidly rise. The populist message likely to be conveyed for 2015 by the Government is, as usual, "we want to help provide afforable housing for all HK people, including HK's lower income people, bla bla bla". But don't be fooled - if I had to guess, I would think that the "powers that be" would really want to see no more than a 5% fall in prices in 2015, and no more than a 15% increase. Anything outside these ranges are likely to be met with rhetoric and possible measures to "bring prices back into range".
The Hong Kong property market is one of the most under-leveraged markets in the world. My estimate is that most HK property owners have 45% or more equity in their properties (vs say Bangkok or Kuala Lumpur, or Jakarta or Manila), where due to relaxed banking standards and regulations, many buyers effectively have purchased with "5-10% down", and at inflated prices. Remember what caused the US economic crisis? How quickly people forget. 
China, even if it grows at a "slow" 7% in 2015, will still generate a HUGE amount of wealth among its Billion+ population. For 7% growth in an economy the size of China, even a very small % of that wealth flowing into HK (where all rich, and rising middle class Chinese aspire to own at least 1 property) will continue to support the HK property market. (Picture trying to squeeze a huge volume of blood through a narrow artery - it will send blood pressure (or  in this case property prices) sharply upwards). Add China economic stimulus to that equation (which we will likely see in 2015) and again, this will have a flow-on effect to HK in terms of putting upward pressure property prices.
Hong Kong's population, despite continuing to age, also continues to grow. Arrivals, from around the word, but especially mainland China, will continue to bolster demand for HK property. HK is already jam-packed with people, and more are coming.
A US recovery, over time, will result in a global recovery, and HK has always, for a range of reasons (banking/finance industry, trading industry, low tax/capital gains etc), outperformed the world during times of economic growth.
In terms of the pace of any US interest rate increases which we may see in 2015, ask yourself this - do you really think the US would want to see a fall in US property prices (or US asset values in general)? No, of course not - that is the last thing they would want. Interest rates rises will come, but they will be very slow, gradual, and tentative.
And consider the effects of global inflation (yes its coming!), which is the inevitable consequence that will come from US, and global money printing. Everything is about to become more expensive, from cost of labor, to cost of materials, to cost of food, to cost of land. Wages will of course rise, and will rents rise also. All of which will lead to property prices continuing to increase over time. 
Finally, and this is an important point for anyone who has at least the slightest financial interest beyond HK (which really should be almost all people living in HK except perhaps elderly people in HK who never plan to travel overseas and who have all their assets in HK), the value and pricing of Kong Kong assets, and the HK dollar, compared to assets/currencies globally is likely to grow in relative terms compared to a global basket of non HK/US currencies. So, for example, if, as widely predicted, the US dollar rises 7% in 2015 comparison to a basket of other major currencies, then HK property prices would need to fall at least 7%, before even amounting to a decline against a basket of non-US dollar currencies. For a fall of anything less than 7%, this would still amount to a gain in non-USD/HKD currency (eg think JPY, GPB, AUD, CAD, etc). For anyone who does not understand this simple, but important point, let me provide an example:
A HK apartment at the beginning of 2015 is worth 6.3 million HKD (or 1 million Australian dollars). At the end of 2015, the HK apartment is still worth 6.3m HKD (ie HK prices stayed flat). But the AUD has fallen 7% such that HKD 6.3m, is now worth AUD $1,070,000. In HKD terms the price is flat, but in AUD terms the value of the apartment has risen by 7%.
So, what any Hong Kong property investor ultimately wants is a number, predicting the most likely scenario for HK property prices in 2015. 
My prediction is that in 2015, Hong Kong property will rise 6% over the full year (although expect some volatility for the 3 months or so period following any US interest rate rise), with Park Island slightly outperforming the HK market as a whole (perhaps rising 7-7.5% over the coming year, the rational being that "good value" (in terms of cost vs yield) apartments are likely to be more in demand as the prospect of interest rate rises takes hold). 
In terms of rent increases in Hong Kong in 2015, I am predicting an 8-10% increase, with rental pressure really starting to come on at towards the end of the year and which will gain even more traction in 2016.
Please do feel free to leave me your comment/thoughts/predictions, and wishing everyone the best for 2015!


Tuesday, December 23, 2014

Wednesday, December 17, 2014

Park Island Ferry Schedule. Park Island Bus Schedule.

Here is the most up to date schedule for buses to Park Island and the Park Island ferry schedule: Park Island Buses and Park Island Ferry Schedule

From Park Island Transport Company's website:

Ferry Services:

We operate a fleet of high-speed double-deck air-conditioned catamarans plying between Park Island and Central with a journey time of about 25 minutes as well as between Park Island and Tsuen Wan with journey time of about 15 minutes.

Park Island Ferry Schedule

Bus Services:

We employ a fleet of single-deck buses for four shuttle routes: to and from Park Island / Ma Wan among MTR Tsing Yi Station, Kwai Fong Metroplaza, Hong Kong International Airport and MTR Tsuen Wan Station / Tsuen Wan West Station. MTR Tsing Yi Station and Kwai Fong Metroplaza routes are operated round the clock. 

The journey time *of each route is about 12 minutes, 18 minutes, 30 minutes and 18 to 23 minutes respectively. 

Park Island Bus
Park Island Ferry
Park Island Ferry Terminal

Wednesday, December 10, 2014

Dog killed in an attack by another dog on Ma Wan

I have some sad news to report, regarding a dog which died after being attacked by another dog.

The incident took place near Noah's ark where many children,adults and dogs are present. The deceased dog was attacked and killed and the helper of the dog was also bitten by a big dog that had been living in the area behind Noah's ark. The dog was actually being kept in the shack that is next to the coach park under the bridge near Noah's park. 

The dog that committed the attack was off leash, and not wearing a muzzle. 

Any responsible dog owner who knows their dog is prone to aggressive behavior should keep it on a leash and have it wear a muzzle when in public. Most dogs on Park Island are very well behaved so I think it should be a fair and reasonable assumption for anyone living on Park to have, that if you see a dog NOT on a leash or NOT muzzled, that it is friendly/safe/happy/comfortable with human contact and with other dogs/children etc. If your dog does not fall into this category please do muzzle it.

The dog that committed the attack will apparently not be returning to Park Island. This will not of course bring the dog that was killed back, but it may prevent another tragic incident from occurring in the future.. 

Friday, December 5, 2014

Rules, rules, rules

I've heard it said that Park Island is "like a mini-version of Singapore", and I wonder when I hear this, if it is supposed to be a compliment or a criticism :)

Yes, like Singapore Island, Park Island is well organized, clean, has manicured gardens, lots of greenery, but in some ways it has achieved this through many rules that apply residents. And just like Singapore, some people are not fond of having so many rules that everyone needs to comply with.

I snapped but just a few examples a few signs I saw recently, but didn't include the one in the changing rooms of Blu Blu that reminds residents not to use the hairdryer for their pubic regions (yes, some older men do this, and also use it to dry their feet...). Ewww.

What do you think? Do we have too many rules, or some unnecessary ones in Park Island? 

Sunday, November 30, 2014

Occupy Park Island

It seems that some Park Islanders have gotten behind the "Occupy Movement".

Various banners have been put up on Ma Wan, supported by our Councillor Justin Tseng.

Occupy Hong Kong on Ma Wan
Various residents have also hung up banners of support for the Hong Kong democracy movement in their homes.

Occupy Ma Wan

Overall, Park Island remains a world away from the Occupy protests that are taking place on Hong Kong Island and Mongkok, although clearly as Hong Kong residents, everyone has a view on the current status of affairs in Hong Kong.

Friday, November 28, 2014

Ma Wa website

Apart from this Ma Wan Website there are some other new resources to share for information about Ma Wan / information about Park Island:

The is Ma Wan Online which provides a range of up to date information about Ma Wan and Park Island for residents, including the Ma Wan village. Well worth checking out and well done to the group of residents who are maintaining this site.

Ma Wan Online
There is also a Ma Wan Online facebook page here: Ma Wan Facebook page.

Sunday, November 16, 2014

Ma Wan viewed from above

Here is some pretty cool aerial film footage of Park Island and Ma Wan shot with a GoPro and a drone. 

I thought for a moment it might peep into my apartment but fortunately its not that invasive. Also has some pretty cool footage of the old village part of Ma Wan.