(Yicai) March 15 — Hong Kong property has seen a big surge in demand from mainland buyers after the special administrative region lifted several associated taxes and fees late last month, but in order to circumvent the Chinese government’s restrictions on foreign exchange purchases, a number of ‘underground channels’ to funnel funds abroad have begun to emerge, industry insiders said.
People living on the mainland are flocking to Hong Kong to snap up real estate after the special administrative region’s government decreed on Feb. 28 that all property buyers in the region will be spared from paying additional stamp duties, buyers’ stamp duties and new residency stamp duties, in an attempt to boost Hong Kong’s flagging real estate market.
This made Hong Kong property much cheaper for mainland buyers. They can save around HKD3.2 million (USD410,000) in taxes and fees if they buy an apartment worth HKD30 million (USD3.8 million), for instance.
In the 10 days from March 1 to March 11, 1,828 homes changed hands in Hong Kong, six-and-a-half times the amount in the whole of February, according to data from Centaline Property. And over the weekend of March 9 and 10, there were 335 sales, also more than February’s 280.
Mr. Lin, who runs a small business in Shenzhen, went to Hong Kong earlier this month to view houses, but it took half an hour to enter the real estate agency, there were so many people. There was a huge queue stretching out the door of the sales office and it was extremely crowded inside, he said.
But China’s forex restrictions limit people from the mainland to exchanging a maximum of USD50,000 a year, and these funds cannot be used for overseas property purchases, securities investments, purchasing life insurance or other unauthorized capital projects.
Several ‘underground channels’ to funnel money offshore have emerged, several Hong Kong property agents said. The most common method is to transfer funds in installments from mainland bank accounts to Hong Kong accounts. Small amounts can be transferred this way, after passing through several banks, they said.
For large amounts, it is possible to use ‘underground banks,’ which are unlicensed lenders that engage in illegal financial activities such as unauthorized cross-border remittances, fund payments and settlement services. These channels charge a processing fee that can range from 2 percent to 5 percent of the amount handled, depending on the complexity of the operation, Yicai learned from industry insiders.
But there are risks attached to using these ‘underground channels,’ not least that these illicit lenders may be engaging in criminal business activities, said Gong Yutao, a partner at the Shanghai office of DeHeng Law Offices.
If any violations in the transfer of foreign exchange abroad are found, the entities involved will be fined, ordered to repatriate the foreign exchange within a specific period, and may even be taken to court, according to the country’s Regulations on Foreign Exchange Administration.
Editor: Kim Taylor