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LCQ4: Property market demand-side management measures and "HK Property for HK People" measure

Following is a question by the Hon Claudia Mo and a reply by the Secretary for Transport and Housing, Professor Anthony Cheung Bing-leung, in the Legislative Council today (January 8):

Question:

The Court of Final Appeal has earlier handed down its judgment on an appeal case, declaring that the requirement of seven-year residence in Hong Kong stipulated by the Government for the Comprehensive Social Security Assistance Scheme was unconstitutional.  As there are quite a number of government policies which accord differential treatment to permanent residents of Hong Kong (PRs) and non-PRs, some members of the public are concerned whether those policies have contravened Article 25 of the Basic Law (BL), which stipulates that "[a]ll Hong Kong residents shall be equal before the law".  In this connection, will the Government inform this Council:

(1)  given that non-PRs are subject to both Buyer's Stamp Duty and the enhanced ad valorem stamp duty rates, which were introduced by the Government in October 2012 and February 2013 respectively, but all PRs are not subject to the former while some PRs are not subject to the latter, whether the authorities have assessed if such taxes have contravened the aforesaid BL provision; if the assessment outcome is in the affirmative, of the solution;

(2)  as the leases for the sites sold pursuant to the "Hong Kong Property for Hong Kong People" measure specify that the residential flats built on them can only be sold to PRs, whether the authorities have assessed if such terms and conditions have contravened the aforesaid BL provision; if they have assessed, of the details; if not, whether they will conduct such an assessment promptly and make public the results; and

(3)  whether it has assessed if other measures and policies, which restrict business practices and accord differential treatment to different groups of residents, have contravened the aforesaid BL provision; if it has, of the outcome; if not, the reasons for that, and whether it will conduct such an assessment promptly?

Reply:

President,

The judgement of the Court of Final Appeal (CFA) made on December 17, 2013 was specific to the Comprehensive Social Security Assistance Scheme.  The Court clearly stated that the judgment cannot be extrapolated for general application across the spectrum of all public services.  In other words, in determining whether a difference in treatment between Hong Kong permanent residents (HKPRs) and non-HKPRs is reasonable, rational and constitutional, one has to take into account the objectives, justifications and other key factors of the relevant Government policies or services.

Article 25 of the Basic Law provides that all Hong Kong residents shall be equal before the law.  This guarantee does not invariably require exact equality in all cases.  First, only like cases should be treated alike.  Second, differential treatment of persons in analogous situations would not infringe BL25 if the difference in treatment is justified: the difference in treatment pursues a legitimate aim, is rationally connected to the legitimate aim, and is no more than is necessary to accomplish that aim.

The Government has all along been formulating policies and measures, including but not limited to those regulating business practices, with due regard to the relevant social and economic objectives; their wider implications; the need for a fair business environment; and will ensure that they are in compliance with the laws of Hong Kong, including the Basic Law.  While individual policies or measures may involve differential treatments among different target groups in society, the Government will only make such distinctions in pursuit of legitimate policy intentions.  My response to the specific policies mentioned in the Hon Claudia Mo's question is as follows.

Demand-side management measures in respect of
the property market
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The overheated property market in Hong Kong has reached a state of irrational exuberance in recent years.  As far as residential properties are concerned, overall flat prices had risen by 26% in 2012, culminating in a hefty increase of 117% over the 2008 trough as at end 2012; the share of residential property market transactions taken up by non-local buyers was also generally increasing.  On non-residential properties, prices of retail, office and flatted factory space surged by a cumulative 39%, 23% and 44% respectively in 2012.  Compared with the recent trough in 2009, sale prices for these properties had soared by 148% to 202%. 

The Government announced two rounds of demand-side management measures in October 2012 and February 2013 respectively, including the introduction of the Buyer's Stamp Duty (BSD) and the increase in the ad valorem stamp duty (AVD) for residential and non-residential properties, in order to address the irrational market exuberance and maintain the healthy and stable development of the property market.

The BSD aims to reduce the demand for residential properties (including demand from foreign investments) by increasing the transaction costs of all residential properties, excluding those involving HKPRs and other reasonable situations that are exempted.  It pursues the legitimate aim of according priority to meeting the home ownership needs of HKPRs who have a close connection with Hong Kong under the current tight supply situation, and is also rationally connected to its policy objective.  The Government has also been careful in addressing the issue of acquisitions of residential properties by companies.  In order to ensure that all companies are treated equally under the system, we cannot accept the suggestion to distinguish companies established by HKPRs from other companies and exempt the former from the BSD.

The increase in AVD aims to reinforce demand management on those who have already owned residential properties and forestall shifting of overheating in the residential property market to the non-residential property market.  Upholding the policy of according priority to the home ownership needs of HKPRs, under the revised AVD regime, HKPRs who are not the beneficial owner of any other residential property in Hong Kong at the time of acquisition of a residential property are exempted from the new AVD rates.  This arrangement is rationally connected to the policy objective of the revised AVD regime.  That said, HKPRs do not enjoy any special treatment in respect of non-residential properties.

The Government has carefully analysed the legal implications of these measures before introducing them, and considered that they are in compliance with the Basic Law and are no more than necessary to accomplish the policy objectives.  Demand-side management measures have been proved to be effective in stabilising the property market since they were introduced, and are in the interest of society as a whole and the macro economy.  As the relevant measures are extraordinary measures under the exceptional circumstances, suitable adjustments to the measures would be made as and when necessary.

Hong Kong Property for Hong Kong People
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As regards the "Hong Kong Property for Hong Kong People" measure, it aims at giving priority to HKPRs in making use of our scarce land resources for residential development, having regard to the housing supply situation. The measure does not apply to the existing residential flats in the market, or flats to be constructed on other non-designated residential sites.

Earlier the Government applied the measure on a pilot basis to two residential sites in the Kai Tak Development Area, which were sold by tender in June last year.  As implemented through the lease conditions, the residential flats built on the two sites can only be sold to HKPRs within 30 years from the date of land grant.  The pilot scheme complies with the requirements of the law of Hong Kong, including the Basic Law.  As the scheme is of a pilot nature, the Government will review the scheme at an appropriate time.


Ends/Wednesday, January 8, 2014
Issued at HKT 16:29

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