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Unformatted text preview: Housing Price Bubbles in Hong Kong, Beijing and Shanghai: A Comparative Study Eddie C. M. Hui & Shen Yue # Springer Science + Business Media, LLC 2006 Abstract 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. Keywords Price bubble . Cointegration test . Granger causality . Generalized impulse response function Introduction Over the last two decades, China has achieved rapid economic growth, accompanied by rapid development of the real estate market. Although the Asian financial crisis J Real Estate Finan Econ (2006) 33: 299327 DOI 10.1007/s11146-006-0335-2 E. C. M. Hui ( * ) Department of Building and Real Estate, The Hong Kong Polytechnic University, Hong Kong, China e-mail: firstname.lastname@example.org S. Yue Institute of Real Estate Studies, Tsinghua University, Beijing, China damaged the real estate markets in Southeast and East Asia, it had little impact on the real estate markets in Beijing and Shanghai. As a result of rapid economic growth and urbanization, demand for urban land and new dwellings have increased accordingly, leading to the sustained growth of housing prices. For example, Shanghai Housing Price Index (SHHPI) in the China Real Estate Index System (CREIS) was only 656 points in January 2001, and it rose by 63% to 1,084 points in December 2003. Fluctuations in housing prices not only affect the financial well-being of many corporations and households, but also play an important role on the macroeconomic level. Changes in housing prices would trigger or reinforce the fluctuations in the economy on the macro scale. Therefore, to maintain a stable relationship between housing prices and the economy is of great importance. The burst of the Japanese land price bubble and the Asian financial crisis in recent years have resulted in a sharp drop in property prices in many countries and regions and their economies were badly hit. The case of Hong Kong can be used as an ideal illustration of howwere badly hit....
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