Hongkongers hoping to buy UK residential property are facing a double headache regarding investment costs in the coming days: as a new surcharge comes into effect, while sustained demand has pushed house prices to new highs.
The UK government will proceed to impose a new 2 per cent surcharge on foreigners acquiring property in England and Northern Ireland as planned on April 1. Even so, stamp duty that was cut to zero in July on some houses, will be extended to June 30. This adds urgency for Hongkongers to seize on as they seek to emigrate from the city amid a clampdown on political dissent.
At the same time, UK home prices have risen to new heights – worsening affordability among locals – amid a big push in vaccination programme.
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“Those who are keen to buy must complete the purchase sooner to take advantage of various incentives, as well as more attractive price points,” said Carol Li, business director at Asia Bankers Club, which focuses on marketing overseas property to bankers. “Demand will remain strong as the UK rolls out one of the world’s fastest vaccination programmes.”
The new levy could cost foreigners a cool £95,000 (US$132,000), based on an average home price of £4 million each, according to mortgage broker Enness Global Mortgages. That would work out to £473,750 on a maiden purchase, and to £593,750 on the second home ownership.
Average house prices in the UK rose 8.5 per cent in December from a year earlier to an all-time high of £252,000, the government said last month. The pace is the strongest since October 2014. Purchases by Hongkongers may have had a hand driving affordability to a decade low, according to a study by London-based real estate agency Benham and Reeves.
Prices are likely to rise by 4 per cent and hit 1.4 million transactions this year on the back of an unexpectedly strong market in 2020, according to property consultancy Savills.
The increase lately has coincided with the UK’s offer of an easier path to citizenship for Hongkongers with British National (Overseas) passports.
The new duty was first mooted in late 2019 as part of the Conservative Party’s campaign promises. It was expected to raise about £120 million of revenue annually to provide housing for the poor. It dovetails with other so-called “wealth tax” rolled out by governments elsewhere to replenish their coffers to pay for economic stimulus packages.
The UK government this month announced a two-month extension on property stamp duty holiday in the Budget, a move cheered by analysts. This tax was reduced to zero for certain property price threshold in July last year. It will reset to original rates of between 2 and 12 per cent after the holiday.
“The extension will provide a welcome relief to purchasers on the edge of the deadline, and open the door to additional [pool of late] buyers,” said Mandy Wong, head of international residential at JLL in Hong Kong. “The clock is ticking” for stragglers, she added.
Since the government announced the stamp duty rate at 2 per cent on foreigners in July last year, the pace has quickened to 54 days from 70 days on average to conclude a residential transaction, according to JLL. That suggests foreign buyers have up to May 7 to capitalise on the June 30 extension, Wong estimates.
Despite concerns about market pullback, the extra costs from the new stamp duty remain investor-friendly, according to Ryan Black, director, head of international residential sales at Knight Frank.
“When looking at the additional 2 per cent in comparison to the overseas buyers [stamp duty land tax] implemented in Hong Kong, it seems very palatable,” said Black. The revenue can be put towards affordable housing whilst having “little to no effect on market demand,” he added.
In Hong Kong, depending on the value of the property, the stamp duty land tax ranges from 1.5 per cent to 8 per cent.
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