(Bloomberg) -- Hong Kong’s influential developer association and politicians are putting pressure on the government to remove extra property taxes to lift the lackluster market.

The government is confronting demands from the city’s elite to scrap curbs introduced a decade ago. Developers and lawmakers are ramping up lobbying efforts to sway Financial Secretary Paul Chan on the budget plan slated for Feb. 28. 

“It’s baggage,” said Louis Loong, secretary general at the Real Estate Developers Association of Hong Kong, the body representing the city’s major developers. “It’s the right time to throw away the baggage to consign that to history.” 

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The government is trapped in a dilemma as it tries to put a floor under the plummeting sector, while prioritizing Beijing’s ask of making decent homes accessible to the public. Housing remains a key source of tension in a city that experienced years of turmoil brought on by protests. 

Politicians are also joining the rhetoric. Most of Hong Kong’s major political parties in the Legislative Council — all pro-China — have urged the government to drop the curbs. The city’s largest political party Democratic Alliance for the Betterment and Progress of Hong Kong, or DAB, recommended Chan to scrap the taxes, among other policy suggestions.

The measures are “outdated” now, Holden Chow, DAB’s vice-chairman, said at a press briefing after meeting with Chan in late January. It’s the right time to drop the additional taxes so that “Hong Kong residents need not bear the burden to pay the tax or to face the restrictions when they are having property transactions,” he said.

The government reduced such rates in October to little avail to improve buyer interest. The levies now stand at 15% for foreign buyers, and 7.5% for local residents who own a home. There are also duties imposed on sellers who offload properties in less than two years. 

Weak Market

Hong Kong is facing the worst real estate slump in more than two decades. Used home sales tumbled to a 28-year low in 2023 while prices fell to the lowest since 2017. Expensive interest rates and population outflows due to Beijing’s tightening control have dampened demand. 

The top 10 private housing estates that brokers use to gauge market sentiment had no sales during the Lunar New Year holiday earlier this month for the first time since records began in 2010, signaling the reluctance of buyers to enter the market.

It’s a reversal from a decade ago when an influx of mainland money and overnight wealth creation fueled investment into the city. 

Extra stamp duties were introduced in the early 2010s when the market was booming — prices more than doubled in 2013 from 2008 on the back of ultra-low interest rates.

Social Grievances

Scholars argue that the curbs play an important role in preventing markets from overheating, especially when prices are out of reach for many. 

“It’s time to think about whether we should treat housing as a necessity or a commodity,” said Carlos Lo, head of the Department of Government and Public Administration at the Chinese University of Hong Kong. “Property prices should be linked with affordability, not purely market decisions.”  

Those thoughts echo Beijing’s diktat. But even with the tax removal, the city’s property prices might not recover. Buyers remain cautious in the face of Hong Kong’s diminishing role as an international finance center, high interest rates and an abundant supply of first-hand homes.

“The boost will not be substantial,” said Kathy Lee, head of research in Hong Kong at Colliers International Group Inc.

Regardless, Loong says his motion is gathering support and he’s confident the measures will be lifted next week. 

“I started as the lone voice in the wilderness,” Loong said in an interview. “Now it’s a chorus around the city.”

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