Hong Kong's new anti-foreigner property tax may catch on elsewhere. Battling the effects of cheap money and capital flight, the territory's authorities have slapped a 15-per-cent stamp duty on buyers without a permanent resident's card. Though the move will have unintended side effects, its political logic could prove appealing in other urban hot spots.
The average cost of a small Hong Kong apartment rose by a fifth in the first nine months of the year. Yet the territory's currency peg to the U.S. dollar means raising interest rates would merely attract more foreign inflows. So far, the authorities have concentrated their efforts on protecting the banking system by placing increasingly tight limits on mortgages.
The new special stamp duty is aimed squarely at the other driver of Hong Kong property inflation: Chinese buyers. Investors from the mainland seeking a safer place to park spare cash have become an increasing feature in recent years. In 2008, non-residents bought one in 17 of Hong Kong's newly-built properties. Last year, they snapped up one in five.
Taxing non-residents is a blunt instrument. It punishes Hong Kong-based expatriates who want to establish a permanent base in the city as well as domestic developers seeking to spruce up old buildings. It also treats mainland buyers as foreigners. These groups may yet challenge the new measures in court.
However, the political appeal is clear. Rising property prices used to be a sign that a city was attracting high earners whose taxes and spending would add to prosperity. But when real estate becomes a safe-harbour asset for foreign landlords, many of them effective absentees, that argument no longer applies.
Singapore has also imposed an extra stamp duty on foreign buyers. Others may follow suit. House prices in central London, for example, have soared in defiance of Britain's economic gloom as investors seek a haven from the storms of the euro zone. While European law would make it hard to discriminate against buyers from Spain or Italy, local authorities could take other measures, such as imposing extra taxes on owners who leave their houses empty. The anti-foreigner property backlash has some way to run.