Cooling Measures in Hong Kong and its Residential Property Market: 樓市降溫「辣招」與香港樓市

Yonglin WANG*

*Corresponding author for this work

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Since the Global Financial Crisis, Hong Kong has witnessed house prices surge from one record high to the next. In an attempt to rein in the overheated housing market, the Hong Kong government rolled out 12 rounds of interventions (cooling measures) from October 2009 to May 2017, which included tightening the mortgage supply and imposing various stamp duties (as
shown in Table 1). Despite intensive debate among market observers, no consensus has been reached on whether the measures have been successful. There has also been growing concern over the unintended consequences of the measures. With the economy hit hard by the US–China trade tension, the unprecedented social unrest in 2019, and the subsequent COVID-19 outbreak, Hong Kong has inevitably slipped into economic recession. Given this, calls have been made to ease certain restrictions on the residential property market. However, without a comprehensive assessment of the overall impact, especially the unintended consequences, of each round of government interventions, it is difficult to determine when and which cooling measure(s) should be relaxed. In this regard, understanding the effectiveness of each of the past interventions is of first-order importance.

This project provides a comprehensive empirical analysis using robust transaction-level data containing over 90% of transactions of residential properties in Hong Kong from January 2008 to October 2018. The 12 rounds of cooling measures are numbered chronologically and classified into mortgage-tightening measures (Round 1, 3, 5, 6, 9, and 12) and tax-related measures (Round 2, 4, 7, 8, 10, and 11). Considering the inherent heterogeneities across
submarkets, the residential housing market is further classified into two dimensions: market type and floor area. Such classification creates a total of nine submarkets: first-hand market, second-hand market, mass market, high end market, second-hand HOS market, first-hand mass market, first-hand high-end market, second-hand mass market, and second-hand high-end market. A regression discontinuity design (RDD) is employed to explore the overall effectiveness, unintended consequences, and transmission mechanisms of each round of cooling measures on the nine submarkets.

The empirical results suggest that mortgage-tightening measures have effectively curbed the overheated property market by reducing price and trading volume in the short term. However, specific submarkets have still experienced volatilities on occasion. For example, the first-hand market, particularly the mass submarket, witnessed an increase in price and volume under the Round 3 and 6 measures. The second-hand market and its submarkets, on the other hand, have seen a decline in both price and volume.

The project also documents the distribution and pattern of price and volume responses to tax-driven measures by market. The findings suggest that while tax-driven measures, compared to mortgage-tightening measures, are more efficient in suppressing trading activities, they also trigger price volatilities across market sectors. In particular, the second-hand market was disproportionally subdued in terms of volume compared to the first-hand market. Moreover, as market observers note, stamp duties may cause a reduction in flats listed in the second-hand market, which eventually leads to a higher price. Finally, there is suggestive evidence of the “spillover” effect on subsidized public housing (HOS) units, which experienced a price hike after the Round 2 measures and slashes in both price and volume following the Round 4 measures. In addition, the transaction volume declined further after the Round 8 measures, which introduced “Double Stamp Duty.” This project is expected to provide policy implications and recommendations that will be helpful to policymakers in reviewing the current cooling measures and for designing future
housing policies.
Original languageEnglish
PublisherLingnan University
Publication statusPublished - 2022


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