The impact of cooling measures : evidence from Hong Kong residential re-sale market

• Main Author: HU, Mengna
• Format: Others
• Language: en
• Published: Digital Commons @ Lingnan University 2017
• Subjects: Economics
• Online Access: https://commons.ln.edu.hk/econ_etd/31; https://commons.ln.edu.hk/cgi/viewcontent.cgi?article=1031&context=econ_etd

To understand the effects of credit constraints and transaction taxes in housing market, this paper exploits the cooling measures imposed by the Hong Kong government aimed at addressing the overheated property market. The cooling measures include mortgage tightening measure which decreases the financial leverage for households and stamp duty measure which heightens the transaction costs for certain buyers. By using a comprehensive transaction-level dataset, we first assess the impact of both measures on trading activity in the residential re-sale market. The empirical findings suggest that the mortgage tightening measure does not have a significant impact on the overall trading activity in the overall market, but forces certain buyers to purchase smaller-sized homes. The stamp duty measure leads to lower trading activity in the overall market and the negative effect spreads across the submarkets. We then examine the behavioral response in the timing of transactions and tax incidence to special stamp duty, a transaction tax aimed at combating speculators. We find that the imposition of the special stamp duty is associated with an average of 6.8% price reduction of properties that are subject to such tax duty compared to those that are not subject to such tax. We also provide graphical evidence on the bunching in transactions right above the notch on holding period where the tax rate drops to 0%, suggesting that special stamp duty rate generates significant lock-in effects. Lastly, we employ non-linear models to capture the regime switching behaviors of transactions and housing prices in the aggregate housing market. The models reveal the occurrence of regime switches in aggregate transactions following the government intervention, particularly after the introduction of stamp duty measure, while no abrupt regime switches are observed in the price dynamics since the intervention except for the episode in the end of 2015. The larger impact on trading activity may indicate that most of the effect of those measures falls on the quantity in the housing market rather than the price.