Take a look at the world’s dizzying surges in the price of housing for 12 months at the end of June: London, up 20%. Manhattan, 18%. Sydney, 15.4%.
Then there are Singapore and Hong Kong: down 3.7% and 0.6%.
Prompted by concerns over potential property bubbles and affordability for the middle class, the governments of the two Asian cities have been reining in home prices by imposing measures including mortgage caps, taxes on property flippers, and levies on foreign buyers as high as 15%.
“Hong Kong has successfully cooled down the market in terms of transactions and turnover,” said Raymond Yeung, senior economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “Singapore has been more effective.”
So could New York, London and other global cities facing soaring housing prices pull off the same act?
Not really. Hong Kong and Singapore’s island geographies, preponderance of public housing resulting in two-tier housing markets and citizens willing to tolerate government directives make the cities unique, according to academics and researchers. London and New York have nowhere near the same level of control over their economies and the behavior of their residents.
Having Clout
Singapore and Hong Kong, as a special administrative region of China, have governments with policy-making power over their entire geographic areas, where they are relatively free of political opposition from neighborhood groups or borough councils that stymie directives or mitigate their effectiveness. The Asian cities control the land supply and are the biggest landlords.
That allows them to implement decisive policy measures. For example, in January 2013, the Monetary Authority of Singapore, effectively the central bank and chief regulator, cut the mortgage ratio allowable on purchases of second homes while more than doubling minimum down payments from 10% to 25%. The banks had no choice but to follow.
“Imagine doing something like this in the U.S. where there are 7,000 banks and many regulators,” said Sumit Agarwal, a professor in economics, finance and real estate at the National University of Singapore. “It’s a nightmare from the policy point of view and would be impossible.”
Hong Kong and Singapore haven’t shied away from using taxes to discriminate against foreign buyers -- something other locales with surging prices have yet to do. Non-permanent residents in both cities are subject to an additional 15% tax when they buy property, except in Singapore where Americans are exempted by treaty.
Free-Market
While such actions may seem contradictory to the cities’ stated free-market principles, “affordable housing is part of the legitimacy of any government, and government has a role to play in intervening in the market in periods where there are extreme circumstances,” said Michael Klibaner, who heads Greater China research at real estate firm Jones Lang LaSalle Inc. in Hong Kong.
The U.K. government has tried some measures. After it increased the stamp duty to 7% on high-value properties in March 2012, price increases for homes valued from 5 million pounds to 10 million pounds ($10.6 million to $21.1 million) slowed from 9.7% to 5.8% in the subsequent year, according to broker Knight Frank LLP.
Bank of England Governor Mark Carney announced another set of measures last month, citing concerns over household indebtedness and the threat of a property bubble. They limit mortgages to less than 4.5 times a borrowers’ annual income and require banks to refuse loans to those failing to prove they could afford a 3%age-point rise in interest rates.
Stagnant Prices
They may be working. Prices in the capital stagnated in July, the first month with no growth since December 2012.
Meanwhile the opposition Labour Party has backed away from a call for a flat tax on properties worth more than 2 million pounds, instead suggesting taxes that rise the more expensive a property is, if they win next year’s U.K. national election.
Least likely to be deterred are well-heeled buyers from Russia, the Middle East and Asia looking to park their money in tony London neighborhoods, the ones who have helped drive up the prices, said Matthew Pointon, a property economist at Capital Economics Ltd. in London.
“Wealthy people who buy these houses just pay it,” said Pointon, adding that the government isn’t interested in discouraging the influx of money. “The government is always very keen to portray London as open for business to the world.”
Preferential Treatment
Foreigners in Britain enjoy preferential tax treatment over locals, as they are currently exempt from paying capital gains. This benefit will cease when new legislation takes effect in April bringing the U.K. into line with the U.S. and Australia which charge capital gains on non-residents. (Hong Kong has no capital gains tax while Singapore taxes non residents.)
In Australia, foreigners bought a record 14% of new properties in the first three months of the year, based on a survey of property professionals by National Australia Bank.
In New York, there’s not much likelihood of foreign buyers facing additional costs, said Jones Lang LaSalle’s Klibaner, a native New Yorker.
“If you live in Manhattan, you aren’t going to blame the government for bad policies or become a xenophobe because too many rich Chinese and Russians are buying apartments on Central Park,” he said. “When you want to get on the property ladder, you start in Queens or Brooklyn or New Jersey.”
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