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Get Weaned from Land Sales

Feb 28-2021   



Juxtaposing Singapore and Hong Kong, both in the ranks of Asian Dragons, reveals stark contrasts in the role of ‘land finance’ in their fiscal revenues and offers valuable lessons for China, writes Prof. Lin Shuanglin of the NSD in a commentary. He’s also the Honorary Director of Peking University China Center for Public Finance.

 

Singapore derives its fiscal revenues mainly by taxing incomes, goods and services, and assets, among others. Revenues from land sales are conspicuously close to inexistent. With very limited land size, Singapore has opted not to sell land to real estate developers at high prices to bag high revenues. Prof. Lin commends the practice, saying that selling land at high prices is anything of a tax but name: real estate developers are bound to sell houses at high prices, and what the house buyers have to pay for actually consists of a kind of invisible house purchasing tax for the government.

 

Since the 1960s, the Singaporean government has acquired 80% of all national land at market prices and built affordable housing for its people. Such ‘non-land fiscal policy’ is also positively reflected in the relatively low renting fees of government-owned commercial spaces, which ensures that small businesses like restaurants can operate at low costs and offer dishes at affordable prices. Without resorting to land sales, Singapore has managed to keep improving its infrastructure.

 

By contrast, land sales amounted to 19.48% of Hong Kong’s fiscal revenues in 2019. The ratio was 13.45%, 12.45%, and 16.25% in 2005, 2010, and 2015 respectively. One consequence of land sales at high prices is exorbitant housing prices in Hong Kong, which are far higher than in Singapore. Only 51% of houses in Hong Kong are privately owned, compared to 90% in Singapore. The majority of young people in Hong Kong are priced out of the housing market, and many families live in a cramped space.

 

Collecting revenues from land sales has more downsides than upsides. The invisible house purchasing tax would eventually fall on the young, which detracts from economic efficiency and impedes urbanization. Another problem is the possible wantonness of officials, when facing windfall revenues, to wastefully spend big on short-term projects. The other downsides, says Prof. Lin, include hampering the establishment of a normal taxation system, facilitating corruption, and widening the wealth gap.

Get Weaned from Land Sales

Feb 28-2021   



Juxtaposing Singapore and Hong Kong, both in the ranks of Asian Dragons, reveals stark contrasts in the role of ‘land finance’ in their fiscal revenues and offers valuable lessons for China, writes Prof. Lin Shuanglin of the NSD in a commentary. He’s also the Honorary Director of Peking University China Center for Public Finance.

 

Singapore derives its fiscal revenues mainly by taxing incomes, goods and services, and assets, among others. Revenues from land sales are conspicuously close to inexistent. With very limited land size, Singapore has opted not to sell land to real estate developers at high prices to bag high revenues. Prof. Lin commends the practice, saying that selling land at high prices is anything of a tax but name: real estate developers are bound to sell houses at high prices, and what the house buyers have to pay for actually consists of a kind of invisible house purchasing tax for the government.

 

Since the 1960s, the Singaporean government has acquired 80% of all national land at market prices and built affordable housing for its people. Such ‘non-land fiscal policy’ is also positively reflected in the relatively low renting fees of government-owned commercial spaces, which ensures that small businesses like restaurants can operate at low costs and offer dishes at affordable prices. Without resorting to land sales, Singapore has managed to keep improving its infrastructure.

 

By contrast, land sales amounted to 19.48% of Hong Kong’s fiscal revenues in 2019. The ratio was 13.45%, 12.45%, and 16.25% in 2005, 2010, and 2015 respectively. One consequence of land sales at high prices is exorbitant housing prices in Hong Kong, which are far higher than in Singapore. Only 51% of houses in Hong Kong are privately owned, compared to 90% in Singapore. The majority of young people in Hong Kong are priced out of the housing market, and many families live in a cramped space.

 

Collecting revenues from land sales has more downsides than upsides. The invisible house purchasing tax would eventually fall on the young, which detracts from economic efficiency and impedes urbanization. Another problem is the possible wantonness of officials, when facing windfall revenues, to wastefully spend big on short-term projects. The other downsides, says Prof. Lin, include hampering the establishment of a normal taxation system, facilitating corruption, and widening the wealth gap.