Determinants of Property Prices in Hong Kong SAR: Implications for Policy

November 1, 2011

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Format: Chicago

R. S Craig, and Changchun Hua. Determinants of Property Prices in Hong Kong SAR: Implications for Policy, (USA: International Monetary Fund, 2011) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper uses an econometric model of residential property prices in Hong Kong SAR to assess the effectiveness of alternative policies in slowing the increase in property prices. The rapid rise in property prices is well explained by macroconomic fundamentals; real GDP per capital, real domestic credit, construction costs, land supply, and the real interest rate. Policy can influence the property market though land supply and prudential and tax policy, with the latter policies taking the form of a stamp duty on property transactions and a tighter loan-to-value ratio (LTV) on lending. Land supply is the most effective policy insturment for restraining property price increases but it operates with a significant lag. The LTV and stamp duty dampen speculative activity that drives up property prices. While these policies can slow the increase in the short run, they should be guided by their long run objectives of financial stability and counteracting speculation.

Subject: Domestic credit, Financial services, Land prices, Money, Prices, Real interest rates, Taxes, Transaction tax

Keywords: Co-Integration, Domestic credit, Error correction term, Error-correction term coefficient, Estimation, Estimation result, Global, Integration estimation methodology, Land prices, Land Supply, Loan-to-Value Ratio, LTV ratio, Price, Property price, Property price cycle, Real interest rate, Real interest rates, Stamp Duty, Transaction tax, Variable, WP

Publication Details

Pages:

15
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/277
Stock No:

WPIEA2011277
ISBN:

9781463925949
ISSN:

1018-5941

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