Abstract
Employing the fundamental value of real estate determined by the economic fundamentals, a measurement model for real estate bubble size is established based on the panel data analysis. Using this model, real estate bubble sizes in various regions in Japan in the late 1980s and in recent China are examined. Two panel models for Japan provide results, which are consistent with the reality in the 1980s where a commercial land price bubble appeared in most area and was much larger than that of residential land. This provides evidence of the reliability of our model, overcoming the limit of existing literature with this method. The same models for housing prices in China at both the provincial and city levels show that contrary to the concern of serious housing price bubble in China, over-valuing in recent China is much smaller than that in 1980s Japan.
Highlights
The Chinese economy attracts worldwide attention in order to maintain its high GDP growth rate after the global crisis in 2008
It is necessary to estimate the fundamental value of real estate, which is determined by economic fundamentals
Hui and Wang [11] point out that the discrepancy between the actual price and the theoretical one as a bubble is inaccurate because it contains the random disturbance term, which should appear in every regression of real estate prices by independent variables, including economic fundamentals
Summary
The Chinese economy attracts worldwide attention in order to maintain its high GDP growth rate after the global crisis in 2008. This paper estimates the fundamental value of real estate prices and the bubble sizes by prefecture in 1980s Japan as well as by province and city in recent China. The traditional method of using the housing value as the utility function of each period is not reasonable [4], and objective standards to select economic fundamental variables do not exist [8] Another way is to use fundamental factors to estimate the asset fundamental value, and the difference between the fundamental value and the actual price is defined as a bubble. This paper proposes a method to estimate the housing price bubble size in China.
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