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Long-term and Short-term Determinants of Property Prices in Hong Kong

Author

Listed:
  • Frank Leung

    (Research Department, Hong Kong Monetary Authority)

  • Kevin Chow

    (Research Department, Hong Kong Monetary Authority)

  • Gaofeng Han

    (Research Department, Hong Kong Monetary Authority)

Abstract

Property prices in Hong Kong increased markedly in late 2007 and early 2008, raising concerns about the risk of overheating in the property market. In this paper, we use co-integration analysis to analyze the short- and long-run determinants of property prices in Hong Kong. We find that the long-run determinants include GDP per capita, real interest rate, land supply, and the residential investment deflator, which reflects the impact of inflation and real construction cost. In the short-run, property price is also affected by equity price. Based on this framework, we assess the market conditions in early 2008. We also do graphical and clustering analyses of six property market indicators to supplement the co-integration analysis.

Suggested Citation

  • Frank Leung & Kevin Chow & Gaofeng Han, 2008. "Long-term and Short-term Determinants of Property Prices in Hong Kong," Working Papers 0815, Hong Kong Monetary Authority.
    • Handle: RePEc:hkg:wpaper:0815
    as

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    File URL: http://www.info.gov.hk/hkma/eng/research/working/pdf/HKMAWP08_15_full.pdf
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    References listed on IDEAS

    as
    1. Kostas Tsatsaronis & Haibin Zhu, 2004. "What drives housing price dynamics: cross-country evidence," BIS Quarterly Review, Bank for International Settlements, March.
    2. DiPasquale Denise & Wheaton William C., 1994. "Housing Market Dynamics and the Future of Housing Prices," Journal of Urban Economics, Elsevier, vol. 35(1), pages 1-27, January.
    3. Jonathan McCarthy & Richard Peach, 2004. "Are home prices the next \\"bubble\\"?," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 1-17.
    4. Jonathan McCarthy & Richard Peach, 2002. "Monetary policy transmission to residential investment," Economic Policy Review, Federal Reserve Bank of New York, vol. 8(May), pages 139-158.
    5. Eloisa T Glindro & Tientip Subhanij & Jessica Szeto & Haibin Zhu, 2008. "Are Asia-Pacific Housing Prices Too High For Comfort?," Working Papers 2008-11, Monetary Policy Group, Bank of Thailand.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Mr. R. S Craig & Mr. Changchun Hua, 2011. "Determinants of Property Prices in Hong Kong SAR: Implications for Policy," IMF Working Papers 2011/277, International Monetary Fund.
    2. Ivan D. Trofimov Nazaria Md. Aris Dickson C. D. Xuan, 2018. "Macroeconomic and Demographic Determinants of Residential Property Prices in Malaysia," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 21(2), pages 71-96, November.
    3. Yiu, Matthew S. & Yu, Jun & Jin, Lu, 2013. "Detecting bubbles in Hong Kong residential property market," Journal of Asian Economics, Elsevier, vol. 28(C), pages 115-124.
    4. Hong Kong Monetary Authority, 2017. "Hong Kong’s property market and macroprudential measures," BIS Papers chapters, in: Bank for International Settlements (ed.), Macroprudential policy frameworks, implementation and relationships with other policies, volume 94, pages 141-152, Bank for International Settlements.
    5. Chan Lily & Ng Heng Tiong & Rishi Ramchand, 2012. "A cluster analysis approach to examining Singapore’s property market," BIS Papers chapters, in: Bank for International Settlements (ed.), Property markets and financial stability, volume 64, pages 43-53, Bank for International Settlements.
    6. Trofimov, Ivan D. & Md. Aris, Nazaria & C. D. Xuan, Dickson, 2018. "Macroeconomic and demographic determinants of residential property prices in Malaysia," MPRA Paper 85819, University Library of Munich, Germany.
    7. Dong He, 2013. "Hong Kong’s Approach to Financial Stability," International Journal of Central Banking, International Journal of Central Banking, vol. 9(1), pages 299-313, March.
    8. Terence Tai‐Leung Chong & Alex Wing‐Ho Yiu, 2019. "Nexus between visitor arrivals and residential property rents in Hong Kong," Pacific Economic Review, Wiley Blackwell, vol. 24(3), pages 464-478, August.
    9. Wong, Siu Kei & Cheung, Ka Shing & Deng, Kuang Kuang & Chau, Kwong Wing, 2021. "Policy responses to an overheated housing market: Credit tightening versus transaction taxes," Journal of Asian Economics, Elsevier, vol. 75(C).
    10. Abdullah Yavas, 2013. "Asset Price Bubbles and Monetary Policy," Working Papers 102013, Hong Kong Institute for Monetary Research.
    11. Liu, Tie-Ying & Lee, Chien-Chiang, 2018. "Will the energy price bubble burst?," Energy, Elsevier, vol. 150(C), pages 276-288.
    12. Leung, Charles Ka Yui & Chow, Kenneth & Yiu, Matthew & Tam, Dickson, 2010. "House Market in Chinese Cities: Dynamic Modeling, In-Sampling Fitting and Out-of-Sample Forecasting," MPRA Paper 27367, University Library of Munich, Germany.
    13. Taghizadeh-Hesary, Farhad & Yoshino, Naoyuki & Chiu, Alvin, 2019. "Internal and External Determinants of Housing Price Booms in Hong Kong, China," ADBI Working Papers 948, Asian Development Bank Institute.
    14. Ashvin Ahuja & Lillian Cheung & Gaofeng Han & Nathan Porter & Wenlang Zhang, 2010. "Are House Prices Rising Too Fast in China?," Working Papers 1008, Hong Kong Monetary Authority.
    15. Ashvin Ahuja & Lillian Cheung & Gaofeng Han & Nathan Porter & Wenlang Zhang, 2011. "Are Housing Prices Rising Too Fast in China?," Working Papers id:3646, eSocialSciences.
    16. Tommy Wu & Michael Cheng & Ken Wong, 2017. "Bayesian analysis of Hong Kong's housing price dynamics," Pacific Economic Review, Wiley Blackwell, vol. 22(3), pages 312-331, August.

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    More about this item

    Keywords

    Property price; overheating; co-integration; clustering analysis;
    All these keywords.

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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    This paper has been announced in the following NEP Reports:

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