Property Rights Restrictions and House Prices

Abstract

Using a natural experiment in Singapore, we examine the economic impact of temporarily restricting owners’ rights to transfer their property. Executive condominiums (ECs), introduced to provide affordable housing for the middle class citizens, are subject to restrictions on transferability in the first 10 years, unlike private condominiums. As per the option theory, EC buyers have the forward start American put option with the right to sell their properties only after the contract date. Among transacted units matched by location, completion and transaction dates, and complexand unit-level characteristics, we find that prices of new EC units are about 21% lower than private condominiums. At the 10th year, when property right restrictions are fully removed, the price gap between ECs and private condominiums narrows to about 3%. These results suggest that property right restrictions and illiquidity generated by the forward start American put option for 10 years results in an 18% discount.