A new tax designed to cool down Hong Kong’s notoriously hot property market will hit prices by as much as 10 per cent although the impost does not deal with the underlying issue of cheap global, according to Schroders, the investment house.

The Hong Kong government has recently announced a special Buyer’s Stamp Duty for non-local residents. At a rate of 15 per cent, the tax will apply to all residential property transactions for anybody not a permanent resident in the city.

“The new Hong Kong government that took office in July has already tried to cool the red hot local property market but to no avail. However, the Government’s recent announcement was noted for its severity,” Adam Osborn, Manager of the Schroder ISF Asia-Pacific Property Securities fund, said in a statement.

“The BSD is targeting foreign buyers, the majority of whom come from mainland China. Yet the issue with this latest measure is that it does not solve the issue of cheap money that has come about from ultra-low interest rates in the US and demand that far outstrips supply,” he continued.

“The new measure is set to hit volumes hardest and, as a result, we may see 5-10% declines in prices in the physical market,” Osborn said.

He argued that while developers’ share prices came under pressure following the announcement of the tax, Osborn does not predict there will be major corrections in prices as they now hold significantly less than half of their net asset values in residential property.

There may, however, be a widening of the NAV discounts on developers’ share prices, he said.

“We maintain our view that over the long-term, with the Hong Kong dollar pegged to the US dollar, interest rate policy in the US will remain the biggest risk factor for the Hong Kong housing market. Indeed, this new tax is evidence of the cost of maintaining the peg,” he added.

Strong across Asia

As reported elsewhere in this publication, new figures from the Royal Institute of Chartered Surveyors shows that Asian markets in general "performed well with signs of positive trends, particularly with more positive sentiment found in Hong Kong and Mainland China".

The latest results of the RICS Global Commercial Property Survey highlight the growing divergence between the struggling eurozone economies - which recorded some of the weakest readings in the survey - and the real estate markets in parts of Asia and North America where respondents are more optimistic.