Hong Kong Property-Tax Rise Shakes Shares of Developers

By Anjie Zheng and Gregor Stuart Hunter

HONG KONG--Hong Kong property stocks slumped Monday after a decision by the city's government late last week to increase property taxes in an effort to cool a surging market.

The new measures, which will see stamp duty on home purchases by an individual or corporation almost double to 15% from 8.5%, are meant to tamp down prices that have risen nearly 9% this year, the government said.

Hong Kong developers led the top decliners in morning trading, with New World Development Co., Sun Hung Kai Properties Ltd. and Wheelock & Co. each diving more than 9%. Henderson Land Development Co., Sino Land Co., Kerry Properties Ltd. and Sino Land Co. were all down more than 6%. The broader Hang Seng Index was up 0.5% by the middle of the day.

Hong Kong property prices, already among the world's most expensive, have headed upward this year thanks to low mortgage rates and rising interest from mainland Chinese buyers eager to park their money in non-yuan denominated assets. The Chinese currency has dropped 4.35% against the dollar this year.

Hong Kong Chief Executive Leung Chun-ying said Friday that investment demand in the housing market had risen in the past few months and the cooling measures were in part aimed to counter this.

Analysts at Bank of America Merrill Lynch on Monday downgraded their outlook for Hong Kong developers saying "the higher stamp duty will likely impact about 25% of transactions and drive out investors and some mainlanders (at least in the short term)." BAML now forecasts a 5% drop in Hong Kong property prices in the next six months.

High property prices have long been a flashpoint in Hong Kong, a city of seven million that is part of China but has its own legal and government system.

First-time home buyers who are also Hong Kong residents will be exempt from the new tax rate, the government said.

Analysts expect the new tax measures to fuel reluctance on the part of both buyers and sellers in the housing market, suppressing volume and reducing liquidity.

For equity market investors, this should be a trigger for profit-taking since property stocks have rallied over the past few months on the back of strong sales, said Jonas Kan, head of Hong Kong research at Daiwa Capital Markets.

Write to Anjie Zheng at Anjie.Zheng@wsj.com and Gregor Stuart Hunter at gregor.hunter@wsj.com

(END) Dow Jones Newswires

November 07, 2016 00:38 ET (05:38 GMT)

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