Housing Price Bubbles in Hong Kong, Beijing and Shanghai: A Comparative Study

• Published in: The journal of real estate finance and economics Vol. 33; no. 4; pp. 299 - 327
• Main Authors: Hui, Eddie C. M., Yue, Shen
• Format: Journal Article
• Language: English
• Published: Norwell Springer Nature B.V 01.12.2006
• Subjects: Beijing; Causality; China; Cointegration analysis; Econometrics; Economic crisis; Economic growth; Family income; Financial analysis; GDP; Gross Domestic Product; Hong Kong; Households; Housing; Housing finance; Housing market; Housing prices; Inflation rates; Investigations; Literature reviews; Macroeconomics; Real estate market; Shanghai; Studies; Hong Kong China; Beijing China; China; Shanghai China
• ISSN: 0895-5638; 1573-045X
• DOI: 10.1007/s11146-006-0335-2

This study investigates whether there was a housing price bubble in Beijing and Shanghai in 2003. The existence of a bubble can be interpreted from (abnormal) interactions between housing prices and market fundamentals. This paper introduces an enhanced framework, with the combination of standard econometric methodologies: i.e., Granger causality tests and generalized impulse response analysis, and the reduced form of housing price determinants. A test case in Hong Kong, between 1990 and 2003, is included to test the reliability of our methods because Hong Kong has experienced the formation and bursting of a huge housing bubble around the year 1997. It is found that the pattern and magnitude of the estimated bubbles conform quite well to the discrepancies between the actual and predicted prices. Also, the findings suggest that there appeared a bubble in Shanghai in 2003, accounting for 22% of the housing price. By contrast, Beijing had no sign of a bubble in the same year. The bubble phenomenon, of course, should be taken with cautions. Nonetheless this study has laid the groundwork for further investigations in abnormal housing price phenomena in Mainland China. [PUBLICATION ABSTRACT]