José I. Duarte
Economist, Macau Business Senior Analyst
It is not the first time that stamp duty has been selected as a favoured tool to cool down the market. People may wonder about the expected effects. If experience is anything to go by, the answer does not seem promising. It is doubtful that the instrument used is appropriate for the intended purpose, even leaving aside a discussion of the possible ways to circumvent the rules.
The most recent proposal – now a law – and its accompanying justification is interesting mainly for what is not there – namely, references to the actual effects of the previous measures. As a matter of good policymaking, an assessment of prior actions and their effectiveness should be a cornerstone of the rationale for policy changes.
The stated objectives are, in this and previous similar pieces of legislation, to fight ‘speculation’ or to promote the ‘healthy and stable development’ of the housing market. We could reasonably expect that some effort would be forthcoming in identifying the leading causes of the observed problems and evaluating the impact of the previous policy changes.
The questions are very basic. Who exactly are the main targets of the policy; which variables are likely to affect their behaviour? Is the change in stamp duty a significant hindrance to their purposes; how sensitive are they to such changes? Would the implementation of the new rules raise a plausible expectation that their behaviour will change in the desired ways? Have the previous measures produced any measurable effects? The document the government sent to the Assembly illustrates some cases of calculation of the tax, but no effort is put forward to appraise the previous results or the lessons learned, if any.
As usual, it is useful to check if the figures can tell us something. Remember, this is not the first time the government has fiddled with stamp duty to cool the housing market. That was the case, in particular, with legislation approved in June 2011, revised in October 2012, and the new rules set just last month.
The odds do not seem bright. Average prices per square metre just keep going up, and up, and up. Compared to the previous year, prices rose 38 per cent in 2012, 42 per cent in 2013, and 21 per cent in 2014. Last year, the average price was 3.25 times greater than at the end of 2010, a staggering figure. If the numbers tell us something, it is that the anti-graft drive on the Mainland and the tightening of financial transactions control had a noticeable effect indeed in 2015 and 2016. However, we are talking more of a slowdown than a sustained reversal of the trend.
In the same period, what happened to house affordability? The cost of the average unit sold in the period jumped from 3.4 to 6.6 million patacas. If we take the current median monthly income, last year’s average price represents over 36 years of median income. That is, with a savings rate of 100 per cent – and supposing one could live on thin air – the median resident would have to spend 36 years of income to buy the average market unit. In 2000, a similar calculation would have yielded less than nine years.
Why should we believe this time will be different? That is where the law proposal justification should have started. The figures above strongly suggest that the measures are most likely to be ineffective for the intended purpose and will, at best, be a placebo. Their absence is possibly the best telltale sign we could expect.