Demand Restrictions and Buyers’ Loss Aversion Behavior: Investors versus Owners

Abstract

Singapore’s government imposed two rounds of demand restrictions in 2011 and 2013, respectively, which disallow private housing owners from concurrently owning a private housing unit and a public housing flat. These restrictions curb speculative and investment activities, but do not deter public housing owners from upgrading to private housing. Using private housing transaction data between 2005 and 2015, we find that the demand shocks in 2010 and 2013 cause prices of investors’ transactions to significantly lower by 2.4% and 1.8% relative to owners’ transactions, respectively, ceteris paribus. Larger price declines are observed in investment sales in the submarkets, such as resale market, core central region, medium-to-high end market, and market with large size units. The results imply that while risk averse investors exist the volatile markets, owners move up the “quality” curve through upgrading when the housing market is volatile.

Keywords: Demand restrictions; risk aversion; government interventions; private housing market; investors and owners

JEL Classification: R21, R28