Explicit Measures of Impacts of Transaction Taxes as Market Cooling Measure: Evidence from the Sellers’ Stamp Duty in Singapore Housing Market

73 Pages Posted: 17 Jun 2019

See all articles by Yongheng Deng

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison

Yong Tu

National University of Singapore (NUS)

Yanjiang ZHANG

China Academy of Housing and Real Estate

Date Written: June 6, 2019

Abstract

The paper integrates the theories of market micro structure, contagion and market illiquidity to discover the behavioural and market outcomes in responding to the Seller’s Stamp Duty (SSD) implemented by the government of Singapore to curb the exuberating behaviour in the housing markets. Using the unique experiment of the Singapore property transaction taxes, the paper explicitly quantifies the market responses to the transaction taxes. We find a “SSD lock-in” home seller could yield a housing price premium of 1.5% higher than that of a “SSD non lock-in” home seller. This marginally compensates the SSD tax rate. An SSD tax compels a “SSD lock-in” home seller to search and bargain harder, higher SSD tax strength results in higher bargaining power by at least 1.3%. We document that some “SSD lock-in” home sellers opt to lease out the property with the rents at least 0.8% lower than that of SSD non lock-in housing investors because the lock-in effect lowers their ability to search and bargain in the rental market. The magnitude of “SSD lock-in” effect is determined by the SSD tax strength. We also identify a contagion effect through which the selling decision of “SSD lock-in” home sellers influences the selling decision of “SSD non lock-in” home sellers who subsequently set higher asking prices. This amplifies the trade frictions among the “SSD lock-in” home sellers to market level illiquidity. It explains why housing transaction volumes are low while prices remain high after a transaction tax is implemented.

Keywords: transaction taxes, housing investor, lock-in effect, illiquidity

JEL Classification: H71, R21, R31

Suggested Citation

Deng, Yongheng and Tu, Yong and ZHANG, Yanjiang, Explicit Measures of Impacts of Transaction Taxes as Market Cooling Measure: Evidence from the Sellers’ Stamp Duty in Singapore Housing Market (June 6, 2019). Available at SSRN: https://ssrn.com/abstract=3400017 or http://dx.doi.org/10.2139/ssrn.3400017

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison ( email )

4110 Grainger Hall
975 University Avenue
Madison, WI 53706
United States
+1 (608) 262-4865 (Phone)

HOME PAGE: http://https://bus.wisc.edu/faculty/yongheng-deng

Yong Tu

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

Yanjiang ZHANG (Contact Author)

China Academy of Housing and Real Estate ( email )

18 Chaowang Rd
Xiacheng Qu
Hangzhou Shi, Zhejian 310021
China
15060797665 (Phone)

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