Effects of Resale and Purchase Taxes on Primary and Secondary Real Estate Markets
||Lee, Gabriel S. and Hao Li
||Effects of Resale and Purchase Taxes on Primary and Secondary Real Estate Markets
||Book of Abstracts: 2005 European Real Estate Society conference in association with the International Real Estate Society
||This paper analyzes the effects of speculative taxes on real estate market. The government of Hong Kong has repeatly adopted various anti-speculative measures to curve rapidly rising housing prices in recent years. In Hong Kong, developers typically sell apartment units one year before the completion of the apartment buildings. Moreover, nearly half of all newly built residential houses are resold within one year during a typical boom cycle. One of the government's proposals to control speculation is through taxes in the resale market. In this paper, we present a theoretical analysis of implications of such policy that focuses on consumer demand uncertainty as well as the interaction between the primary and the secondary markets. We ask: Do taxes lower prices in the primary market? How do taxes affect developers' incentive to build? Is it possible that taxes actually increase housing shortage and therefore housing prices by discouraging builders? Our model predicts that under certain conditions, speculative taxes in the secondary market do not necessarily reduce prices in the primary market.
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