Tobin Tax Policy, Housing Speculation, and Property Market Dynamics

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.

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