Tobin Tax Policy, Housing Speculation, and Property Market Dynamics

94 Pages Posted: 10 Sep 2020 Last revised: 10 Jan 2022

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

K.W. Chau

The University of Hong Kong - Ronald Coase Centre for Property Rights Research - Economics

Maggie Hu

The Chinese University of Hong Kong

Wayne Xinwei Wan

Monash University

Date Written: January 7, 2021

Abstract

Hong Kong introduced a Tobin property tax—the Special Stamp Duty (SSD) Policy—in 2010, which substantially increased the selling costs of short-term property holders. This study examines the effectiveness of this Tobin property tax in curbing speculation and cooling down the market. We find that SSD effectively curtails short-term speculations and reduces flippers’ (holding period less than 2 years) market presence, which fell from 23.2% in 2009 to 2.4% in 2011 and 0.9% in 2013. However, 1 year after implementing the tax, the housing price shows an upward trend of 12.64% and 15.76% in the primary and secondary markets, respectively, indicating a lack of a market cooling effect. We show that flippers strategically defer sales to circumvent SSD charges, resulting in the sharp bunching of urgent sales immediately after the lock-in period ends. Further, SSD effectively increases selling costs and prolongs potential sellers’ holding periods, thereby significantly reducing liquidity and driving up prices in the secondary market. We also document an unintended externality on market dynamics: the unmet housing demand from the secondary market triggers a buying frenzy into the primary market, which increases the prices in both markets. Our findings have policy implications for the viability of Tobin taxes for regulating real estate markets.

Keywords: Tobin tax policy, stamp duty tax, property speculators, lock-in period, bunching effect

JEL Classification: R31, H21, H26

Suggested Citation

Agarwal, Sumit and Chau, Kwong Wing and Hu, Maggie and Wan, Wayne Xinwei, Tobin Tax Policy, Housing Speculation, and Property Market Dynamics (January 7, 2021). Available at SSRN: https://ssrn.com/abstract=3641624 or http://dx.doi.org/10.2139/ssrn.3641624

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Kwong Wing Chau

The University of Hong Kong - Ronald Coase Centre for Property Rights Research - Economics ( email )

Ronald Coase Centre for Property Rights Research
Pokfulam Road
Hong Kong
Hong Kong
(852)39172128 (Phone)
(852)25599457 (Fax)

Maggie Hu (Contact Author)

The Chinese University of Hong Kong ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Hong Kong, N.T.
Hong Kong

Wayne Xinwei Wan

Monash University ( email )

Wellington Road
Clayton
Melbourne, VIC 3168
Australia

HOME PAGE: http://xinweiwan.weebly.com

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