POLICIES TO CURB PROPERTY MARKET SPECULATION : A COMPARATIVE ANALYSIS

Abstract

Residential property prices in Singapore have been rising over the past four years, at a rate much faster than the growth rate of the economy. The concern is whether this increase is supported by market fundamentals. If prices rise beyond their fundamental values, an undesirable asset-price bubble may develop, which when burst will have undesirable consequences for the entire economy.

The concern regarding increasing house prices is also due to the nature of the commodity. Housing is more than just a consumption and investment good, it also has effects on political and economic stability which is important for sustained growth and development. Its merit good-nature as well as its potential to be an instrument for speculation have warranted attention from the policy-makers.

The speculation motive to reap the "unearned increment" has been advanced by Henry George in 1880 as the driving force behind a property price surge. In this light, there is a need to consider the feasibility of implementing a capital gains tax on real estate transactions in Singapore to correct the resultant anomaly in property prices. Manipulation of market prices may be another reason for a price surge. In this regard, demand revelation mechanisms such as a Vickrey auction may be helpful to remove incentives to misrepresent preferences.

The objective of this thesis is to review existing policies to curb property market speculation in (a) Singapore; (b) Japan - governed by a heavy hand of the government; (c) the US - committed to the free market mechanism; and (c) South Korea - also plagued by the land problem. The pros and cons of speculation, and policies to deter speculation in Singapore's property market will also be examined.