All questions

Real estate ownership

i Planning

The Town Planning Board is a statutory body established under the Town Planning Ordinance tasked with guiding and controlling the development and use of land and types of buildings suitable for erection, preparing new draft zoning plans, exhibiting draft plans for public comment, considering applications for planning permission, and submitting draft plans for approval by the Chief Executive in Council. Its executive functions are carried out by the Planning Department, which is responsible for creating plans on behalf of the Town Planning Board, providing technical services and enforcing zoning restrictions. The Town Planning Appeal Board hears appeals against the Board's decisions to reject planning applications.

ii Environment

The environment is an issue of significance for town planning and land development in Hong Kong. Governmental supervision is generally by way of proper land use planning, along with appropriate controls at the source through licensing and enforcement of environmental protection ordinances. Environmental planning is an early consideration when the government scrutinises and considers approving land use plans. The government review focuses on the impact of the development on air, noise, water and waste pollution levels.

Development projects that have the potential to cause significant damage to the environment may be classified as Designated Projects under the Environmental Impact Assessment Ordinance and are required to follow the statutory environmental impact assessment process to obtain the requisite environmental permits before construction and operation commence.

iii TaxStamp duty on disposition of immovable property

There are three types of stamp duty that may be applicable to the sale of property in Hong Kong. The ad valorem stamp duty (AVD) is applicable to all dispositions of immovable property. The government has also introduced a special stamp duty (SSD) and a buyers' stamp duty (BSD) with effect from 20 November 2010 and 27 October 2012 respectively for the sale of residential properties. The SSD and the BSD were introduced with the aim of cooling the overheating residential property market.

The parties legally liable to pay AVD, BSD or SSD are defined under the laws of Hong Kong. However, it is customary for a contract for sale to stipulate that the purchaser will pay the AVD and BSD and the vendor will pay the SSD.

Effective from 27 October 2012, BSD is payable on a contract for sale or a conveyance on sale of any residential property. BSD is charged at 15 per cent on the consideration or the market value of the property (whichever is higher). The BSD is subject to specific exemptions, including the sale of the property to a Hong Kong permanent resident. Any residential property acquired and resold within certain holding periods, up to 36 months, will be subject to the SSD ranging between 10 to 20 per cent of the value and consideration of the property, depending on the timing of re-sale.

AVD for residential properties has been increased to a flat rate of 15 per cent on the consideration or the market value of the property (whichever is higher). Persons who qualify for a lower rate of AVD must satisfy certain exemption criteria stipulated by the Hong Kong government. Examples of such exemption are when the buyer is a Hong Kong permanent resident and is not a beneficial owner of any other residential property in Hong Kong at the time of acquisition of the residential property or the buyer has divested himself or herself of ownership of all other residential property in Hong Kong within six months.

On 11 April 2017, the Hong Kong government tightened up measures on the existing exemptions to the effect that, unless specifically exempted or otherwise provided in the law, acquisition of more than one residential property under a single instrument executed on or after 12 April 2017 will be subject to the proposed new AVD flat rate at 15 per cent. The AVD chargeable on sale or transfer of non-residential properties in Hong Kong will remain at Scale 1 rates, which range from 1.5 per cent to 8.5 per cent, depending on the consideration and valuation of the property. If an exemption is applicable to the sale or transfer of a residential property, the AVD chargeable will be at the lower Scale 2 rates.

On 29 June 2018, the government suggested charging special rates on first-hand private residential units that remain vacant (Special Rates). It is proposed that owners (mainly developers) of first-hand private residential units that have satisfied building regulation and are fit for occupation for 12 months or more will be required to furnish annual returns to the government on the occupancy status of the units. Units that are not occupied or rented out for more than six months during such 12-month period will be considered as vacant and subject to the Special Rates. The government plans to introduce an Amendment Bill into the Legislative Council to amend the Rating Ordinance. Until then, the Special Rates remains a proposal.

Stamp duty on transfer of Hong Kong stock

The acquisition or transfer of shares in a property holding company is not subject to the AVD, SSD or BSD. However, parties will still have to pay stamp duty at the following rates if the transfer directly involves Hong Kong stock:

DocumentRate
Contract note for sale or purchase of Hong Kong stock0.1% of the amount of the consideration or of its value on every sold note and every bought note
Transfer operating as a voluntary disposition inter vivosHK$5 + 0.2% of the value of the stock
Transfer of any other kindHK$5

The parties legally liable to pay stamp duty on the transfer of Hong Kong stock are defined under the laws of Hong Kong. Customarily, the stamp duty is borne by the buyer and the seller in equal shares.

Rates and government rent

Owners of Hong Kong properties will also have to pay rates and government rent on their real estate assets.

Rates are a tax on the occupation of property. They are charged at a percentage of the rateable value being the estimated annual rental value of a property at a designated valuation reference date, assuming that the property was vacant and to be let out. The rates percentage charge is determined by Hong Kong's legislature, the Legislative Council. For the 2018–2019 financial year, the rates percentage charge is 5 per cent.

The basis of the government rent is from the government lease or grant that provides that rent is payable to the government. The government rent is calculated at 3 per cent of the rateable value of the property situated on the land leased and is adjusted with any subsequent changes in rateable value.

Property tax (levied on rental income)

Property tax is levied on property owners on the rental income derived from Hong Kong property. The tax is assessed on the net assessable value of the rental income. The current property tax rate is 15 per cent.

iv Finance and security

The financing of a real estate asset acquisition will usually involve the lender taking security over the property by way of a mortgage or a charge. The distinction between a mortgage and a charge is historical whereby the mortgagee has legal and equitable interest in the land subject to the mortgagor's right of redemption as compared to charge having certain rights, such as the right to sell, but legal and equitable interest still belongs to the chargor. Since 1984, a legal mortgage can only be created by way of a legal charge and the Conveyancing and Property Ordinance grants the holder of a mortgage by legal charge the same rights as a historical mortgagee. Other securities that are common include an assignment of sale proceeds, assignment of rental income and assignment of insurance proceeds. The security documents that effect property will constitute a registrable encumbrance on the property and should be registered with the Land Registry to establish the chargee's priority interest.