EE Literature Review

LCroftEE2023DBS
Literature Review May 2024

G11 Name: Jasper Tang Supervisors Name: Mr. Charles Wu
RQ. To what extent has the stamp duty improved private housing affordability in Hong
Kong
The following table will help you to write your literature review.
You should aim to have between 5 – 10 quality secondary sources.
This will vary depending on the nature of the research question and topic chosen and advice
from your own Supervisor.
Step One
Name/title of Citation (date, publisher, page no. date

article/journal/novel/research paper accessed from website)
1 Tracking the tax dodgers: A study

on avoidance of residential property Tracking the tax dodgers: A study on
tax by share transfer in Hong Kong avoidance of residential property tax by
share transfer in Hong Kong (2021) Liber
Research Community. Available at:
https://liber-research.com/en/tracking-the-
tax-dodgers-a-study-on-avoidance-of-reside
ntial-property-tax-by-share-transfer-in-hong
-kong/ (Accessed: 19 April 2024).
2 House prices and the effectiveness of House prices and the effectiveness of
housing market policies in Hong Kong housing market policies in Hong Kong SAR
SAR (No date, International Monetary Fund)
3 New Evidence of the Effect of

Transaction Costs on Residential Van Ommeren, J. and Van Leuvensteijn, M.
Mobility (2005) ‘New evidence of the effect of
transaction costs on residential mobility*’,
Journal of Regional Science, 45(4), pp.
681–702.
doi:10.1111/j.0022-4146.2005.00389.x.
4 The effectiveness and consequences

of the government’s interventions for Deng, Y. et al. (2024) ‘The effectiveness and
Hong Kong’s residential housing consequences of the government’s
markets interventions for Hong Kong’s residential
housing markets’, Real Estate Economics,
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52(2), pp. 324–365.

doi:10.1111/1540-6229.12472.
5. How do stamp duties affect the

housing market? Davidoff, I. and Leigh, A. (2013a) ‘How do
stamp duties affect the housing market?’,
SSRN Electronic Journal [Preprint].
doi:10.2139/ssrn.2287073.
6. The impact of cooling measures: Hu, M. (2017). The impact of cooling

Evidence from Hong Kong Residential measures: Evidence from Hong Kong
Resale market residential re-sale market (Master's thesis,
Lingnan University, Hong Kong). Retrieved
from
http://commons.ln.edu.hk/econ_etd/31/
7. Policy responses to an overheated Wong, S.K. et al. (2021) ‘Policy responses to
housing market: Credit tightening an overheated housing market: Credit
versus transaction taxes tightening versus transaction taxes’, Journal
of Asian Economics, 75, p. 101330.
doi:10.1016/j.asieco.2021.101330.
Step Two (complete this for each one of your chosen secondary sources)
Add your answers in each box. Adapt the document as necessary based on your own
Research Question
1. Tracking the tax dodgers: A study on avoidance of residential property tax by

share transfer in Hong Kong
Arguments Q. What are the main arguments or interpretations to emerge from the
literature?
This empirical study exposes a key weakness or loophole of the stamp

duty in Hong Kong. It found that numerous investors exploited the ‘share
transfer’ loophole to evade stamp duty.
Themes Q.. What are the main themes or areas covered by the literature
reviewed?
Limitations of the stamp duty.
Sections Q. What sections (or headings) can I sub-divide my topic into if relevant?
XXX
Problems Q. What are the key problems relating to my topic that emerge from the
literature reviewed that I need to address?
That the results of the stamp duty may be skewed by policy errors. It is
not purely Economics.
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Consensus Q. What consensus of opinion or comparisons between sources exists?
Wong, S.K. et al. (2021) suggests that the effectiveness of intervention is

also subjected to the ease of enforcement. This literature adds to that
source and highlights a substantial loophole in the policy.
Contrast Q. What contrasting opinions exist within the literature reviewed?

Since it is a short empirical research, there are none.
Method Q.. How can the chosen theory or model be applied to your investigation?
This research investigates property transactions through shell companies

and hence estimates the amount of tax evasion. Its empirical method
relates well to my investigation. I could utilize government data to support
my arguments.
Limitations Q.. What limitations can be identified in the method chosen or sources
selected?
It is not possible to track all transactions which exploit the loophole. There
is certainly an underestimation.
2. House prices and the effectiveness of housing market policies in Hong Kong
SAR
literature?
This empirical study argues that stamp duty has played a role in subduing
the real estate market, by comparing the current trajectory with a
counterfactual trajectory (without implementation of stamp duty).
Housing market measures have helped reduce house price appreciation
and credit growth in Hong Kong SAR, but have not prevented the credit
and housing boom
reviewed?
Effect of stamp duty on market prices.

Pros: Stamp duty reduces housing prices, hence improve affordability.

Contention remains between sources. I will have to reason for that later
on.
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Hu, M. (2017) points that the stamp duty has greatly reduced short-term
speculative activity. Their stances are in tandem.
There are none.
It uses a cointegration method to examine the correlation between

macroeconomics trends and the property market. Then it builds a
counterfactual model to compare it with the actual trend.
selected?
Cannot entirely attribute the result to the implementation of stamp duty.

For instance, adjustments in LTV have also influenced the property
market.
Moreover, the counterfactual model may not be entirely accurate, since

there are a lot of determinants apart from macroeconomic trends.
3. New Evidence of the Effect of Transaction Costs on Residential Mobility
literature?
reviewed?
Evaluating the stamp duty with empirical data.

Weighing between the pros and cons of the stamp duty, and arriving at a
conclusion. There is a lot of contention among literature papers.
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The consensus is that stamp duty is not as effective for the two reasons: 1.
Hard to enforce, 2. Reduction in supply, compounded by inelastic demand,
leading to increase in prices. This consensus is shared with the 6th
literature paper.
There are none
It builds a econometric model which calculates the changes in probability

of relocation due to stamp duty. It offers a counterfactual which can be
compared. I could think about using counterfactual examples.
selected?
The model assumes that every buyer has perfect foresight and is
completely rational. Which is obviously not the case.
4. The effectiveness and consequences of the

government’s interventions for Hong Kong’s
residential housing markets
literature?
This literature compares the effectiveness of tax-driven measures vs

mortgage tightening measures. It compares the results and comes to a
conclusion that tax-driven measures (i.e. stamp duty) are not as effective,
since it reduces supply and inadvertently pushes up prices.
reviewed?
It evaluates government policies used to correct the housing market.

XXX
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LCroftEE2023DBS
It argues that stamp duty is not effective since it causes a reduction in

supply of second market housing. However, this claim is contentious.
Certain literature claim that in general housing prices are lower than what
it would have been without intervention. I have to spot the distinctions
between these literature papers and try to reach a reasonable conclusion.
Moreover, I could conduct primary research (e.g. interviewing

professionals) or analyze data to examine this point.
The consensus is that stamp duty is not as effective for the two reasons:
1. Hinders the trading-up process (limits supply in low-end market)
2. Reduction in supply, compounded by inelastic demand, leading to
increase in prices. Also shared by (Wong, S.K. et al. (2021))
There are none.
It uses transaction data to analyze price/volume directions after each

round of implementation (i.e. whether there is a price increase/decrease,
volume increase/decrease).
selected?
The results simply show whether there is a price increase/decrease,

volume increase/decrease after each round of measure. But the
magnitude of change is not taken into account. This could cover certain
truths in the market.
5. How do stamp duties affect the housing market?
literature?
It suggests that stamp duty can have an economically meaningful impact

on housing prices and turnover in Australia. A short term impact of a 10
percent increase in the stamp duty is to lower house prices by 3 per cent.
reviewed?
Evaluating the stamp duty with empirical data and counterfactual models.
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Investigating the welfare loss arising from the stamp duty. It is one of the
downsides.
There are opposing views about stamp duty. This literature supports the
stamp duty, suggesting it tames speculation and improves affordability.
There is a consensus between this source and the 2nd source, which
suggests that stamp duty does indeed help reduce housing prices. This
literature also investigates short-term changes, whereas the 2nd source
investigates the long-term change .
There are none
Method Q. How can the chosen theory or model be applied to your investigation?
The data used in this study were purchased from Australian Property
Monitors (APM), which is Australia’s leading firm that compiles house
price data. Since stamp duty was only implemented in certain states, the
housing prices in such states could be compared with the national trend.
The effect of stamp duty can be examined.
selected?
A key empirical challenge in estimating the relationship between taxes

and prices is that there is a mechanical relationship between the stamp
duty paid on a property and the sale price. Therefore, if one were to
simply regress the sale price on the tax payable on that property, the
coefficient would capture both the mechanical fact that the tax amount is a
function of the price, as well as any behavioral impact of taxes
on prices.
6. The impact of cooling measures: Evidence from Hong Kong Residential Resale
market
literature?
It finds that the stamp duty has effectively suppressed speculative activity;
however, it could restrict the supply of low-end housing due to a decrease
in residential mobility. Demand in the high-end sector was lessened. The
non-linear stamp duty in Hong Kong causes the sellers to cut the price if
their properties are set at a price slightly above the threshold where the
tax rate jumps in order to reduce the buyer’s tax obligation.
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LCroftEE2023DBS
reviewed?
Investigating the pros and cons of stamp duty.

Sections Q. What sections (or headings) can I subdivide my topic into if relevant?

The consensus is that stamp duty is not as effective for the two reasons: 1.
Hard to enforce, 2. Reduction in supply, compounded by inelastic demand,
leading to increase in prices. This consensus is shared with the 6th
literature paper.
Although speculative activity was greatly suppressed, it also reduced

residential mobility and restricted the low-end housing supply. Whether
the stamp duty has helped improve private housing affordability is
disputed.
Using empirical data provided by the government/agency to find trends.

Average speculative turnover before stamp duty is used to proxy for
presence of short-term speculators. Compare the period after stamp duty
to capture the stamp duty effect, i.e. with and without short-term
speculators.
selected?
Such ‘speculators’ may actually be households in need for cash. Among

this group, there exists a small fraction of households who are in urgent
need to dispose of their properties in the short term due to the unexpected
circumstances, such as financial difficulty, family issues, and etc.
Therefore, the introduction of SSD makes those genuine home buyers,
who are not real speculators, suffer as they have to pay SSD tax in order
to quickly dispose of the property.
7. Policy responses to an overheated housing market: Credit tightening versus

transaction taxes
literature?
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LCroftEE2023DBS
Similar to the 6th literature paper, it suggests that stamp duty is not very
effective since there are substantial loopholes in this policy, and increases
prices in the low-end market due to inelastic demand. Due to that, the tax
burden falls more on buyers than sellers.
reviewed?

XXXX
This literature mentioned policy error surrounding stamp duty. There are
substantial loopholes. Hence, I may have to try to counter these claims,
for instance, using long-term studies to show that it helps in the long run.
The consensus is that stamp duty is not as effective for the two reasons:
1. Hard to enforce, 2. Reduction in supply, compounded by inelastic
demand, leading to increase in prices. This consensus is shared with the
6th literature paper.
There are none
Estimate the relationship between property prices and macro-economic

factors, hence establishing the equilibrium price level in the absence of
policy intervention. Then the effect of the stamp duty can be estimated. I
could also use empirical data to support my arguments when necessary,
plotting models and graphs.
selected?
The counterfactual model may not be entirely accurate. However, a

majority of studies suggest that stamp duty has an effect of 4-7% decrease
in property price in the short term. Hence, there is an abundance of
studies which support this claim.
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Conclusion - This is the overall research findings now you have reviewed the literature you
have decided is most useful to answer your RQ. Write a paragraph keeping your Research
Question in mind at all times.
Use the following questions to help you structure the conclusion of your Literature Review:
When examining your research findings/sources it is vital that you try to determine the
following:
1. What “solution(s)” has your research so far indicated?

2. What have you learned from the research/results or data?
3. Were there any apparent contradictions that your research indicated? How have you
accounted for these?
4. What, if any, were the limitations of the research approach or methodology chosen?
5. Are there any unanswered questions? Do they fall within the remit of your research
question? If yes, how are you planning to answer them?
There is a general consensus that stamp duty does help reduce housing prices. However,
contentions remain. The effectiveness and consequences of the government’s interventions
for Hong Kong’s residential housing markets offered convincing evidence that stamp duty led
to a reduction in listings in the second-hand market, which eventually led to an increase in
prices. The phenomenon was identified in 2 out of 6 rounds (tax hikes) selected. Policy
responses to an overheated housing market: Credit tightening versus transaction taxes
supplemented that the elasticity of different segments in the housing market (i.e. mass
market, high-end market) affect the effectiveness of stamp duty. The mass market had a
more inelastic demand. The effectiveness also depends on the ease of enforcement,
whereby the stamp duty was found to contain loopholes. This claim is substantiated by the
first literature, which provided empirical evidence that the ‘share transfer’ loophole led to a
potential tax avoidance amounting to $9.4 billion since 2010. It may also hinder the
trading-up process, hence inadvertently reducing supply in the low-end market. However,
without stamp duty measures, real housing prices would have been 12.5% higher. Punitive
transaction tax also helps with deterring short-term speculators, with a 22.4% decline in
trading volumes in estates with substantial speculative activity. This helps correct the
negative consumption externality of speculation.
I attempted to reason for the opposing results in the literature papers. One observation is
that there is a difference in the time frame. In House prices and the effectiveness of housing
market policies in Hong Kong SAR, it compares the counterfactual model and the actual
trend from 2009-2017. It captures a divergence of 12.5% in 2017. The effectiveness and
consequences of the government’s interventions for Hong Kong’s residential housing
markets uses transaction data to identify short-term changes in housing prices upon a stamp
duty hike. Analyzing short-term changes may not encapsulate the entire trend in housing
prices, especially when property markets are typically characterized by stability and
long-termness. Moreover, in the long run, it is reasonable for housing prices to increase with
rents, credit, construction costs, and most importantly, an expanding economy. IMF noted
that housing market measures have helped reduce house price appreciation and credit
growth in Hong Kong SAR, but have not prevented the credit and housing boom caused by
low interest rates, which have had sweeping effects across global cities. Hence, what
matters is whether the magnitude of increment is appropriate or not.
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LCroftEE2023DBS
In these studies, there is a clear limitation when it comes to assuming ceteris paribus
between variables. In counterfactual models, the macroeconomic variables are controlled,
however there could be other factors influencing the property market apart from local
macroeconomic variables. For instance, the rapid growth in wealth in Mainland China has
also contributed to the increased demand in real estate investments.
I also learnt about the various research methods. In the majority of literature, they obtain
empirical data from government/agency. Counterfactual models (if the stamp duty was not
implemented) were built and used to compare with the actual trend. Certain research
estimates the elasticity of stamp duty by comparing the tax hike and the change in
transaction prices/volume. Macroeconomic data can also be analyzed, to find hidden
correlations.
Next step, I will also attempt to analyse the capital flows into the HK property market after
the implementation of the stamp duty. I will also analyse different arguments proposed by the
literature.
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LCroftEE2023DBS

Literature Review May 2024

Name/title of Citation (date, publisher, page no. date

1 Tracking the tax dodgers: A study

3 New Evidence of the Effect of

4 The effectiveness and consequences

52(2), pp. 324–365.

5. How do stamp duties affect the

6. The impact of cooling measures: Hu, M. (2017). The impact of cooling

1. Tracking the tax dodgers: A study on avoidance of residential property tax by

This empirical study exposes a key weakness or loophole of the stamp

Consensus Q. What consensus of opinion or comparisons between sources exists?

Wong, S.K. et al. (2021) suggests that the effectiveness of intervention is

Contrast Q. What contrasting opinions exist within the literature reviewed?

This research investigates property transactions through shell companies

Effect of stamp duty on market prices.

Pros: Stamp duty reduces housing prices, hence improve affordability.

Consensus Q. What consensus of opinion or comparisons between sources exists?

Contrast Q. What contrasting opinions exist within the literature reviewed?

There are none.

It uses a cointegration method to examine the correlation between

Cannot entirely attribute the result to the implementation of stamp duty.

Moreover, the counterfactual model may not be entirely accurate, since

3. New Evidence of the Effect of Transaction Costs on Residential Mobility

Evaluating the stamp duty with empirical data.

There are none

It builds a econometric model which calculates the changes in probability

4. The effectiveness and consequences of the

This literature compares the effectiveness of tax-driven measures vs

It evaluates government policies used to correct the housing market.

It argues that stamp duty is not effective since it causes a reduction in

Moreover, I could conduct primary research (e.g. interviewing

There are none.

It uses transaction data to analyze price/volume directions after each

The results simply show whether there is a price increase/decrease,

5. How do stamp duties affect the housing market?

It suggests that stamp duty can have an economically meaningful impact

There are none

A key empirical challenge in estimating the relationship between taxes

Investigating the pros and cons of stamp duty.

Evaluating the stamp duty with empirical data.

Consensus Q. What consensus of opinion or comparisons between sources exists?

Although speculative activity was greatly suppressed, it also reduced

Using empirical data provided by the government/agency to find trends.

Such ‘speculators’ may actually be households in need for cash. Among

7. Policy responses to an overheated housing market: Credit tightening versus

Evaluating the stamp duty with empirical data.

There are none

Estimate the relationship between property prices and macro-economic

The counterfactual model may not be entirely accurate. However, a

1. What “solution(s)” has your research so far indicated?

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