HK attempts to reverse expat exodus with council tax cut and new visa

(Bloomberg) – Hong Kong chief executive John Lee has unveiled a sweeping plan to bring talent back to the city and ease its housing woes, in a bid to revive its status as a thriving international financial hub.

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The city leader, in his first policy speech on Wednesday, announced he would slash property rights for non-permanent residents and ease visa rules to reverse a brain drain caused by years of isolationist policies from Covid. His proposals to make real estate more affordable answered Beijing’s call to fix the hub’s infamous housing market, which Chinese officials have blamed for political unrest in the city.

Lee, who took office in July, has a tough road ahead of him as Hong Kong’s economy limps towards the end of the year. Gross domestic product is expected to contract for the third time since 2019 as the fallout from Covid restrictions, rising interest rates, global inflation and Russia’s war in Ukraine dampen growth.

“The world is undergoing profound changes not seen in a century,” Lee said, citing some of these factors as having “weakened the growth momentum of the global economy.”

Visa and property rules came under intense scrutiny on Wednesday for signs of how Lee intended to boost the city’s economy and its competitiveness among rival financial hubs, primarily Singapore. The Southeast Asian city-state has tried to lure talent and businesses away from Hong Kong with its own new visa program and a faster, more aggressive rollback of Covid restrictions.

The Hang Seng Index was down 1.8% at 1:36 p.m. local time as Lee delivered his speech. A property developer sub-index fell 0.8%, erasing gains prior to its 2.8% speech.

Countering Singapore

Lee outlined a two-year visa program for people earning at least HK$2.5 million ($318,480) a year, which will allow them to explore opportunities in Hong Kong without being subject to no quotas. Recent graduates from the world’s top 100 universities will also be eligible for work visas, he added.

The city will also suspend its current program’s annual quota for qualified talent and extend the stay limit for non-local graduates from one to two years.

The proposal comes two months after Singapore announced its own five-year work visa scheme for foreigners earning S$360,000 ($253,530) a year, citing a hypercompetitive battle for global talent.

As Hong Kong eased its toughest Covid restrictions in recent weeks – in September Lee announced an end to hotel quarantine for travelers – he followed Singapore, which this spring dropped many of its toughest restrictions. prohibitively expensive and openly stated that it needed to position itself as a leading financial center and a global city.

The university visa scheme, meanwhile, echoes a similar talent incentive scheme in the UK, which earlier this year launched a two-year visa scheme for jobseekers graduating from top universities. over the past five years.

Real estate proposals

A long-awaited change to property rules included a refund plan for additional stamp duty that buyers of non-permanent resident property must pay after staying in the city for seven years.

Once they have become permanent residents, these buyers can request reimbursement of two separate stamp duties, each set at 15%. They still have to pay another tax capped at 4.25%, as do permanent residents of the city.

Hong Kong’s property market is one of the most expensive in the world, and the sector has collapsed due to rising rates and population out-migration.

Second home prices have fallen 8% since the start of the year and are on track to approach a five-year low. Goldman Sachs Group Inc. expects home prices to fall 30% through 2023 from last year’s levels.

Easing or lowering stamp duty rates for non-local buyers could attract demand, especially from mainland Chinese interested in luxury residential properties, Patrick Wong, real estate analyst at Bloomberg Intelligence said ahead of the policy speech. . The impact on sales of mass residential projects could be limited until there is more clarity on how mortgage rates could rise, he added.

To help more people access the costly barrier to entry of the housing market, Lee also detailed a proposal to expand home ownership. It has pledged to increase overall social housing production by around 50% over the next five years.

national security

Lee also used his address, his most important speech since taking office in July, to express his gratitude to Chinese President Xi Jinping. The city leader said Xi’s speech on Sunday at a major congress in Beijing would serve as a “blueprint” for governing Hong Kong.

In the speech, Xi credited a national security law signed into law in June 2020 — as well as an electoral overhaul to ensure governance under the leadership of approved “patriots” — with restoring order to the city. The Chinese leader also stressed that the “one country, two systems” model of governance in Hong Kong “must be adhered to in the long run”.

National security has been a key theme in political discourse in recent years, and Lee has made it clear that it is always a priority. He stressed that the city must remain vigilant against threats and recommitted to implementing Hong Kong’s own local security law, Article 23, without setting a deadline for doing so.

Other details of Lee’s political address:

  • Hong Kong will set aside HK$30 billion ($3.8 billion) to set up a ‘co-investment fund’ to attract businesses to set up shop in Hong Kong and invest in their business

  • Hong Kong will align with China’s development policies to inject energy into the city’s development and cement its role as a regional hub

  • The city’s stock exchange will revise motherboard listing rules next year to make fundraising easier and revitalize the growth business market, a market with lower listing eligibility criteria .

  • Hong Kong Monetary Authority Begins Preparation of Digital Hong Kong Dollars

  • The city aims to attract 100 high-potential innovation and technology companies to the city to drive economic value and jobs

  • Hong Kong to promote its fintech industry, offer tax benefits to family offices

(Updates throughout.)

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