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)| false ( Rabanal, P.and Shukla, A. 2018). House Prices and the Effectiveness of Housing Market Policies in Hong Kong SAR. Chapter 2 in Selected Issues Papers, People’s Republic of China-Hong Kong Special Administrative Region: 2017 Article IV Consultation. IMF Country Report 18/17, International Monetary Fund.
The author thanks Giovanni Dell’Ariccia, Ehsan Ebrahimy, Sonali Jain-Chandra, Soledad Martinez Peria, Markus Rodlauer, and seminar participants at the International Monetary Fund and the Hong Kong Monetary Authority for useful comments and discussions.
More specifically, the 50 percent LTV ratio applies to properties whose value is above HKD 10 million.
See International Monetary Fund (2018) for a detailed description and timeline of all the macroprudential measures and stamp duty tax changes since October 2009.
A baseline RBC small open economy model can be found in Schmitt-Grohe and Uribe (2017). Housing and credit frictions are included as in the contributions by Iacoviello (2005) and Alpanda and Zubairy (2016).
This assumption is introduced for simplicity. Alternatively, it is also possible to assume that savers use bank deposits to save, and that banks lend to borrowers, in a frictionless banking sector.
This paper only evaluates changes in the Ad Valorem Stamp Duty and Buyers Stamp Duty taxes. The Special Stamp Duty was introduced to reduce speculation in the housing market, and the applicable tax rate depends on the length of period that the property is purchased and resold. Studying the effects of this non-linear time-dependent tax rate is not straightforward in the current framework.
This relationship is suggested by Schmitt-Grohe and Uribe (2017) to ensure that the model has a well-defined steady-state. If ψ = 0, the model would not converge to the initial steady-state even with transitory shocks. In practice, ψ is calibrated to a small numerical number such that the model converges to the steady-state, but the friction included in (4) does not affect the business cycle properties of the model.
In Iacoviello (2005), the entire stock of outstanding loans is subject to the LTV cap in each period.
The assumption that labor between patient and impatient households is not fully substitutable might not necessarily be realistic, but it is a convenient assumption to solve for the steady-state of the model.
The model only considers households that own a residential property, and hence the relevant fraction for calibrating borrowers and savers are those who live in owner-occupied properties. If the model also included a renting versus owning decision, then the fraction of savers in the economy would have to be calibrated to 0.30, which is the fraction of households that own a property without a mortgage relative to all households in Hong Kong SAR.
If the AR(1) coefficient were to be assumed smaller than one, in order to keep the policy instrument at a constant value as is the case in the data, agents would have to be surprised every period with a shock. It is more compelling to assume that agents expect the change to be permanent.
The impulse-responses to the remaining shocks in the model are available upon request.
The Ad-Valorem Stamp Duty tax affects first time buyers as well as those buyers who own more than one property and foreign buyers. There are some exemptions which include: property transactions with the Hong Kong SAR government, gifts of properties received by charitable institutions, or transfers of property to a beneficiary of the estate of a deceased person. The Stamp Duty Ordinance, available at https://www.elegislation.gov.hk/hk/cap117, lists all the relevant exemptions.