Abstract
This paper examines the stationarity properties, the long-run equilibrium and the leadlag relationship among the regional house prices in China from December 2000 to July 2013. Unlike traditional unit-root tests, the panel seemingly unrelated regressions augmented Dickey-Fuller (SURADF) unit-root test reveals that the regional house prices in China are a mixture of I(0) and I(1) processes. There is concrete evidence in favor of the hypothesis of a long-run equilibrium relationship among all regions, except for Shanghai region, and supporting the price diffusion or ripple effect among these Chinese cities. Finally, we determine that these regional house prices exhibit uni-directional causalities running from Beijing, Chongqing, and Shenzhen to Guangzhou and Tianjin, respectively.
Highlights
The price diffusion or ripple effect refers to the phenomenon whereby price shocks in one area have a permanent or a transitory effect on the house prices of other metropolitan areas – that is the so-called price diffusion or ripple effect
Alternative unit-root tests and the degree of mean reversion. This empirical analysis consists of the monthly housing price indices from six Chinese cities, i.e., Beijing (PEK), Chongqing (CKG), Guangzhou (CAN), Shanghai (SHA), Shenzhen (SZX), and Tianjin (TSN), which are obtained from the China Real Estate Index System (CREIS), as indicators of house prices in different cities2
The Beijing and Shanghai market play an important role as a price leader and should be watched for policy control, while Shenzhen is the first special economic zone in China, which makes is significantly distinct from other cities
Summary
The price diffusion or ripple effect refers to the phenomenon whereby price shocks in one area have a permanent or a transitory effect on the house prices of other metropolitan areas – that is the so-called price diffusion or ripple effect. Many studies have discussed what causes such ripple effect in housing markets. Meen (1999) points out that price shocks ripple out across the economy is caused by equity transfer, spatial arbitrage, migration, and spatial pattern in the determinants of house prices. If the ripple effect is valid, there should be long-run relativities between the regions. The government can identify the original shock of local housing prices and intervene with the real estate market in the source region, rather than that all regions (Chiang 2014). An essential issue to government is to investigate the behaviour of regional house prices
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