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Are House Prices Rising Too Fast in China?

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Author Info

  • Ashvin Ahuja

    (Asia-Pacific Department of International Monetary Fund)

  • Lillian Cheung

    (Research Department, Hong Kong Monetary Authority)

  • Gaofeng Han

    (Research Department, Hong Kong Monetary Authority)

  • Nathan Porter

    (Asia-Pacific Department of International Monetary Fund)

  • Wenlang Zhang

    (Research Department, Hong Kong Monetary Authority)

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    Abstract

    Sharp increase in house prices combined with the extraordinary lending growth in Mainland China during 2009 has led to concerns of an emerging real estate bubble. We find that, for China as a whole, the current levels of house prices do not seem significantly higher than would be justified by underlying fundamentals. However, there are signs of overvaluation in some cities¡¦ mass-market and luxury segments. Unlike advanced economies before 2007-8, prices have tended to correct frequently in China. Given persistently low real interest rates, lack of alternative investment and mortgage-to-GDP trend, rapid property price growth in China has, and will continue to have, a structural driver.

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    File URL: http://www.hkma.gov.hk/media/eng/publication-and-research/research/working-papers/HKMAWP10_08_full.pdf
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    Bibliographic Info

    Paper provided by Hong Kong Monetary Authority in its series Working Papers with number 1008.

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    Length: 32 pages
    Date of creation: Dec 2010
    Date of revision:
    Handle: RePEc:hkg:wpaper:1008

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    Related research

    Keywords: House price; price misalignment; financial stability; leverage cycle;

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    References

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    1. Jing Wu & Joseph Gyourko & Yongheng Deng, 2010. "Evaluating Conditions in Major Chinese Housing Markets," NBER Working Papers 16189, National Bureau of Economic Research, Inc.
    2. Harding, John P. & Rosenthal, Stuart S. & Sirmans, C.F., 2007. "Depreciation of housing capital, maintenance, and house price inflation: Estimates from a repeat sales model," Journal of Urban Economics, Elsevier, vol. 61(2), pages 193-217, March.
    3. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 19(4), pages 67-92, Fall.
    4. Dong He & Wenlang Zhang & Jimmy Shek, 2006. "How Efficient Has Been China's Investment? Empirical Evidence from National and Provincial Data," Working Papers, Hong Kong Monetary Authority 0619, Hong Kong Monetary Authority.
    5. James M. Poterba, 1983. "Tax Subsidies to Owner-occupied Housing: An Asset Market Approach," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 339, Massachusetts Institute of Technology (MIT), Department of Economics.
    6. Frank Leung & Kevin Chow & Gaofeng Han, 2008. "Long-term and Short-term Determinants of Property Prices in Hong Kong," Working Papers, Hong Kong Monetary Authority 0815, Hong Kong Monetary Authority.
    7. John Geanakoplos & Ana Fostel, 2008. "Leverage Cycles and the Anxious Economy," American Economic Review, American Economic Association, American Economic Association, vol. 98(4), pages 1211-44, September.
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    Cited by:
    1. Zhang, Yanbing & Hua, Xiuping & Zhao, Liang, 2012. "Exploring determinants of housing prices: A case study of Chinese experience in 1999–2010," Economic Modelling, Elsevier, Elsevier, vol. 29(6), pages 2349-2361.
    2. Jing Wu & Yongheng Deng & Hongyu Liu, 2014. "House Price Index Construction in the Nascent Housing Market: The Case of China," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 48(3), pages 522-545, April.

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