Stamp Duty has been relaxed for Non-HK Residents and Overseas Talents, are you looking to invest in Hong Kong Real Estate?
Here is a brief guide to Real Estate System in Hong Kong.
How is land owned in Hong Kong and what is the Government’s policy towards granting of land?
Under the Basic Law, all land in Hong Kong is owned by the People’s Republic of China and the Government (“Government”) of the Hong Kong Special Administrative Region (“Hong Kong”) is responsible for its management, use and development. The Government has the authority to grant leases (or agreements for lease) or licences to individuals, legal persons or organizations for use and development. All tenures in Hong Kong are leasehold, except for St. John’s Cathedral, which is held under freehold tenure.
Prior to 1 July 1997, land was granted for terms of varying duration. Some may run for 999 years, some for 99 years while others may run for 75 years with a right to renew for a further term of 75 years. For land in the New Territories, the lease term could not exceed the term of the lease of the New Territories granted by China (as it was then known) to Great Britain (as it was then known). As a result, New Territories leases were granted for either 99 years less three days from 1 July 1898, or for 75 years from 1 July 1898, with a right to renew for a further term of 24 years less three days. The New Territories Leases (Extension) Ordinance (Cap. 150) extended the term of all leases in the New Territories which would have expired on 30 June 1997, to 30 June 2047, without payment of an additional premium.
After the resumption of sovereignty of Hong Kong by the People’s Republic of China on 1 July 1997, the Government has been granting land leases with terms of 50 years from the date of the land grant. The Government has constitutional authority to extend the term of the land lease beyond 30 June 2047 under Article 123 of the Basic Law.
Subject to the restrictions in the land grant concerned, leasehold interest can be assigned, charged or sublet.
Land parcels are usually sold by public auction (or other competitive processes such as tender) and usually to the bidder who offers the highest land premium or through land exchanges with the Government (which will take the form of a surrender of an existing leasehold interest to the Government in exchange for the grant by the Government of another leasehold interest).
What restrictions are there on foreigners owning land in Hong Kong?
Generally, foreigners can own land in Hong Kong and there is no nationality restriction on ownership of land. However, the Government has a policy of selling certain residential sites with conditions restricting the sale of residential flats to lower income or other underprivileged families and individuals. Since 2012, the Government has further implemented the “Hong Kong Property for Hong Kong People” (HKPHKP) policy which affects selected residential developments in Hong Kong. Under this policy, the developers of such sites, at the time of selling or pre-selling flats can only sell these flats to Hong Kong permanent residents. Such restrictions will apply for thirty years from the date on which the site was granted. As of April 2023, the HKPHKP policy has only been implemented on two residential sites in Kai Tak, Kowloon.
Who should be the registered owner of land?
Land is usually held in the names of individuals or corporate entities.
When purchasing residential property (whether completed or uncompleted flats or vacant land), it is critical that the person/entity who will be the buyer is determined before entering into any legally binding agreement. Changing the buyer or the holding entity will attract substantial additional stamp duty (with very limited exceptions to this rule).
Subject to the above, it is not uncommon for investors of high value property in Hong Kong to hold it through a holding structure with two layers of companies. The property will be held by a Hong Kong-incorporated company with the sole shareholder (or ultimate shareholder) being a company incorporated in a tax haven jurisdiction (eg the British Virgin Islands).
Such a structure has the following advantages:
- If the property is sold by means of a sale of shares in the Hong Kong-incorporated company, the transaction will attract stamp duty (normally payable by the buyer) for an amount equal to 0.2% of the consideration paid or the value of the shares being transferred, whichever is higher. Hong Kong stamp duty is not payable if the sale is effected by means of the sale of shares in the non-Hong Kong company (ie the ultimate shareholder).
- If the property is held by a non-Hong Kong company, then legal opinions relating to the non-Hong Kong company and other legal formalities and documents will be required. This will result in a longer completion time and additional legal and accounting expenses.
A non-Hong Kong company that is a body corporate and has established a place of business in Hong Kong is required to register with the Companies Registry pursuant to Part 16 of the Companies Ordinance (Cap. 622). Once registered, it will be subject to filing requirements under the Companies Registry and pay similar taxes as a Hong Kong incorporated company.
How does the land registration system work?
When it was under British rule, Hong Kong adopted a system of registration of instruments (deeds) affecting land. This system was commonly known as a land registration system of “unregistered title”. However, when the United Kingdom updated its land registration system to one of “registered title” (with guaranteed title), Hong Kong did not follow to update its system of registered title. Therefore, in Hong Kong, mere registration does not guarantee title as Hong Kong has not adopted a Torrens type system. In Hong Kong, registration of instruments only gives priority to the person holding a prior registered interest over a subsequently registered interest. An unregistered instrument (subject to certain exceptions) will lose its priority to subsequent buyers, assignees or mortgagees for valuable consideration (provided that the subsequent buyer, assignee or mortgagee concerned has completed the registration formalities).
The buyer, assignee or mortgagee has to lodge the instrument concerned with the Hong Kong Land Registry together with a memorial in the prescribed form. Once the instrument has been successfully registered, the land register will be updated to show the registered instrument, which will then be returned to the lodging party. If the instrument does not comply with the requirements of the Land registry, then it will be stopped and returned to the lodging party for amendment.
In our upcoming articles, we will be sharing with you how one can hold Hong Kong property and the practical costs involved in buying Hong Kong property.
We will also share with you how one can save the most stamp duty when holding Hong Kong property (for investment purpose).