The View | Opinion: Curbing speculators, and regulation are no guarantees of property market success
Why are investors still chasing yield when real estate prices are already so high?
We often hear laments that ‘housing is for living, not for speculation’ whenever demand increases faster than supply and speculation becomes rife in the market place.
Faced with populist political pressure, governments look for quick fixes. They often deal with the symptom of housing price increases by suppressing demand and limiting speculation.
Speculators are detested because most people simply reason that every housing unit they buy and hoard removes its immediate availability to those in need of a place to live.
But such populist narratives fail to recognise that speculation is the outcome of housing shortages and not the cause.
Sometimes governments also worry about the dangers runaway property prices will pose to banking and financial stability, so they try to tighten credit conditions by lowering loan-to-value ratios. Purchasers have to put up a higher share of the property value as down payment towards a mortgage loan.
Hong Kong began doing this in 1991 and by 2011 the loan-to-value ratio had been lowered from 90 to 50 per cent. Other draconian measures were introduced in 2012 that for all practical purposes eliminated speculation from the market. Yet this still failed to prevent housing prices from soaring again in late 2016.
