Cooling off’ measures choke supply
BY ALLAN TONG KOK MAU
Imagine if a regulatory body decided to limit the number of durians purchased by each individual in order to lower the price of durians ( a prickly local fruit) so that everyone would have the chance to taste the King of Fruits. What would happen?
If this campaign was successful to the point that prices fell to close to or below production costs, durian planters and sellers would rather walk away from their plantations and let the fruits rot on trees than to harvest the fruits, transport them to towns and sell them at a lost. Economics 101 tell us that when supply reduces, price increases.
This is what’s happening in the property industry especially in Asian countries today. As a developing and booming region, Asia has seen lots of activities in the property industry in the past 10 years.
The housing price increase in this region is also more significant due to rising input costs, strong economic conditions and growing populations.
To prevent the property prices from surging further due to growing demand and worldwide quantitative easing (money printing) government policies, several governments in this region have introduced various “cooling off” measures with the most insistent being China, Hong Kong and Singapore.
In China, the State Council stepped up a three-year campaign to “cool off” home prices in March. Measures included raising first-time buyers’ down payments from 20% to 30%, and second-home buyers’ down payments from 50% to 60%, and ordering stricter enforcement of a 20% capital gains tax on sales. The government also limited home purchases in certain areas, tightened credit-quota limits and raised benchmark lending rates.
However, according to a recent report by the National Bureau of Statistics (NBS) China, residential and commercial property sales totalled 3.34 trillion yuan (RM1.77 trillion) in the first six months, jumping 43.2% compared to a year earlier.
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