A decision by Beijing’s liaison office in Hong Kong to claim it was not a department of the central government has shed light (again) on the state’s tax-exempt real estate empire in the city – a portfolio of 757 properties.

A pro-democracy political group published findings that Beijing’s Hong Kong-based liaison office owns 757 properties in the city with a total value of more than HK$3.4 billion ($440 million). The findings, quoted in an «SCMP» report, highlighted that the liaison office was especially active following the 2014 protests in Hong Kong, adding 130 mostly residential properties since then.

The revelations of the giant property portfolio come amidst a political row involving whether or not the liaison office would fall under Article 22, which states that departments of the central government are to allowed to interfere in Hong Kong’s local politics. The Hong Kong government released four press releases – with varying and contradictory interpretations – that finally underlined that the liaison office would not be subject to the rule.

Political and legal hurdles aside, the issue also unveiled an additional financial hurdle should Beijing be able to classify the unit outside Article 22 as it would no longer qualify for tax exemptions on property purchases.

Tax Exemptions?

According to a «Bloomberg» report last year, the liaison office and its subsidiary companies have received more than $27 million of stamp duty exemptions on at least 91 property deals dating back to 2012, based on official data from the local tax office. As of December 2019, the liaison office achieved a record-high exemption of $10.4 million from 22 transactions.

The report places a much higher estimate of the liaison office’s property portfolio with an estimated value of $1.5 billion from 20 buildings across the city. It also notes that the figure is «likely conservative» due to limited transparency on transactions and holdings.

It remains to be seen how the issue will conclude and whether or how tax exemptions would be reversed on previous purchases. In response to the government’s announcements, the Hong Kong Bar Association has stepped up to resist the liaison office’s interpretation in an issued statement that said it had no power to «supervise» the city’s matters and that it was bound to Article 22.