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The authors are grateful to David Robinson, Jim Gordon, Guy Meredith, Aasim Husain, and Caroline van Rijckeghem for helpful comments, and to Bin Zhang for excellent research assistance.
The overall indices of residential property prices published by HKSAR Census and Statistics Department were used. These indices were deflated by the CPI(A) index to obtain real indices.
Land for noninstitutional uses is generally leased to the highest bidder at public auctions, with lease terms of 50 years. Some sites were granted on 75-year leases, while agricultural land was granted on 999-year leases chiefly to indigenous people in the New Territories; such leases are no longer available. The reservation price for a given site is based on the market price prevailing one week before the auction. Most leases are transferable, and the land market is a market for land leases. As each lease term requires a large lump-sum premium and a small annual rent, the premium attached to any given land lease approximates the land value.
See Dodsworth and Mihalejek (1997). All leaseholds in the New Territories and New Kowloon were to expire on June 27, 1997; without the Joint Declaration and the Basic Law, land and property owners in this area would have had no guarantee of lease renewals (92 percent of the land mass of the HKSAR).
Under the program, details of land sales for the next two fiscal years were announced, and the program of land disposal over the following three years was outlined. The program envisaged a significant increase in land supply for housing development then considered sufficient to meet ambitious housing production targets.
Eased anti-speculative measures included relaxation of the resale restrictions on uncompleted flats before assignment; quota expansion for the schemes permitting low- and middle-income families to take advantage of favorable market conditions; withdrawal by the Hong Kong Monetary Authority of its 40 percent guideline on the property exposure of banks; and a scheme by the Hong Kong Mortgage Corporation enabling home buyers to secure mortgages up to a loan-to-value ratio of 85 percent.
See Peng and Wheaton (1994) for the period 1965–90. Property companies typically acquire land long before developing the sites in order to build up strategic “land banks.” Intensive bidding in land auctions is generally interpreted by market analysts as a signal of developers’ confidence in the longer-term outlook for the property market, rather than a leading short-term indicator of property prices.
The market for residential property development is dominated by a small number of firms. During 1991-1994, 25 percent of the housing units were supplied by 1 firm; 55 percent came from 4 developers; and 7 firms supplied 70 percent of new private housing (Consumer Council (1996)); since 1981, all new firms have together had a market share of less than 5 percent.
Massive immigration from mainland China during 1945–1950 increased HKSAR’s prewar population of 600,000 by 250 percent. Likewise, in 1980–81, nearly Vi million people crossed over during an 18-month period.
Responding to efficiency and equity concerns about the public housing program including long waiting periods for public housing while many current occupants had sufficient means to move to private housing, the Housing Authority initiated strengthened means-testing for tenants and applicants in 1996, with families above prescribed levels required to pay market rents. In January 1997, the government raised public housing rents (until then estimated at about ⅓ of market rent), and since July 1997 has also made efforts to limit public rental housing growth and to increase the share of housing for sale on subsidized terms.
If the second bracketed term converges to zero for sufficiently large n, then the equation represents the long-run equilibrium price P t*, and the current value of the asset is represented as the sum of expected present values of all future dividends/rents. If the second term does not converge to zero, then the asset price includes speculative bubbles B t.
The primary data sources are the Hong Kong Monthly Digest of Statistics, HKMA Monthly Bulletin, and government property market surveys.
During this step, the models that generated numerical singularities were first set aside. This did not diminish the admissible set of models in any substantive manner. The remaining admissible models were then ordered according to Schwartz Information Criterion.
Estimating this equation requires an estimate of rppi*. Furthermore, this estimate needs to be consistent with drppi* and the parameter estimates of aj. This issue is resolved as follows: (i) estimate the equation without the λ2 term; (ii) construct a first-pass estimate of rppi* by cumulating drppi* over time using the parameter estimates from (i); (iii) calibrate the rppi* series assuming that actual property prices were in equilibrium during a particular time period; (iv) reestimate drppi, including the λ2; (v) reiterate (i)-0v) until the aj parameter estimates stabilize (which typically happens after a few iterations) which implies stability in drppi* and rppi*. The estimated equation is reported under the calibration that the property market was in equilibrium in the first quarter of 1990, which appears to be a reasonable assumption considering the relative stability in drppi* during that time period.