Dynamic analysis of house price diffusion across Asian financial centres

The aim of the paper is to explore both of the effects of macroeconomic variables on house prices and the lead-lag relationships of real estate markets to examine house price diffusion across Asian financial centres. The analysis is based on the Global Vector Auto-Regression (GVAR) model estimated using quarterly data for six Asian financial centres (Hong Kong, Tokyo, Seoul, Singapore, Taipei and Bangkok) over the period from 1991 to 2009. The empirical results indicate that the global economic conditions play significant roles in shaping house price movements across Asian financial centres. In particular, a small open economy that heavily relies on international trade such as - Hong Kong and Taipei, shows a positive correlation between openness and house prices, consistent with the Balassa-Samuelson effect in international trade theory. This suggests that a rise in openness may increase relative price of non-tradable goods and services. In addition, a high degree of economic linkages between the regions indicates existence of lead-lag relationships in house price movements that is transmitted through the housing wealth effect chains. However, the region-specific conditions also play important roles as determinants of house prices, partly due to restrictive housing policies and demand-supply imbalances as in Singapore and Bangkok.