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Predicting property prices with machine learning algorithms

Author

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  • Winky K.O. Ho
  • Bo-Sin Tang
  • Siu Wai Wong

Abstract

This study uses three machine learning algorithms including, support vector machine (SVM), random forest (RF) and gradient boosting machine (GBM) in the appraisal of property prices. It applies these methods to examine a data sample of about 40,000 housing transactions in a period of over 18 years in Hong Kong, and then compares the results of these algorithms. In terms of predictive power, RF and GBM have achieved better performance when compared to SVM. The three performance metrics including mean squared error (MSE), root mean squared error (RMSE) and mean absolute percentage error (MAPE) associated with these two algorithms also unambiguously outperform those of SVM. However, our study has found that SVM is still a useful algorithm in data fitting because it can produce reasonably accurate predictions within a tight time constraint. Our conclusion is that machine learning offers a promising, alternative technique in property valuation and appraisal research especially in relation to property price prediction.

Suggested Citation

  • Winky K.O. Ho & Bo-Sin Tang & Siu Wai Wong, 2021. "Predicting property prices with machine learning algorithms," Journal of Property Research, Taylor & Francis Journals, vol. 38(1), pages 48-70, January.
    • Handle: RePEc:taf:jpropr:v:38:y:2021:i:1:p:48-70
    DOI: 10.1080/09599916.2020.1832558
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    Citations

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    Cited by:

    1. João A. Bastos & Jeanne Paquette, 2024. "On the uncertainty of real estate price predictions," Working Papers REM 2024/0314, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    2. Juergen Deppner & Marcelo Cajias, 2024. "Accounting for Spatial Autocorrelation in Algorithm-Driven Hedonic Models: A Spatial Cross-Validation Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 68(2), pages 235-273, February.
    3. Mostofi Fatemeh & Toğan Vedat & Başağa Hasan Basri, 2022. "Real-estate price prediction with deep neural network and principal component analysis," Organization, Technology and Management in Construction, Sciendo, vol. 14(1), pages 2741-2759, January.
    4. Hoang, Daniel & Wiegratz, Kevin, 2022. "Machine learning methods in finance: Recent applications and prospects," Working Paper Series in Economics 158, Karlsruhe Institute of Technology (KIT), Department of Economics and Management.
    5. Jungsun Kim & Jaewoong Won & Hyeongsoon Kim & Joonghyeok Heo, 2021. "Machine-Learning-Based Prediction of Land Prices in Seoul, South Korea," Sustainability, MDPI, vol. 13(23), pages 1-14, November.
    6. Aoife K. Hurley & James Sweeney, 2024. "Irish Property Price Estimation Using A Flexible Geo-spatial Smoothing Approach: What is the Impact of an Address?," The Journal of Real Estate Finance and Economics, Springer, vol. 68(3), pages 355-393, April.

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