An analysis of the trends and cyclical behaviours of house prices in the Asian markets
| Published date | 01 February 2004 |
| Date | 01 February 2004 |
| Pages | 55-75 |
| DOI | https://doi.org/10.1108/14635780410525144 |
| Author | Ming‐Chi Chen,Yuichiro Kawaguchi,Kanak Patel |
| Subject Matter | Property management & built environment |
An analysis of the trends and
cyclical behaviours of house
prices in the Asian markets
Ming-Chi Chen
Department of Finance, National Sun Yat-sen University, Kaohsiung,
Taiwan, Republic of China
Yuichiro Kawaguchi
Faculty of Real Estate Sciences, Meikai University, Urayasu, Japan, and
Kanak Patel
Department of Land Economy, University of Cambridge, Cambridge, UK
Keywords Property, Prices, Structural systems, Time series analysis, Asian studies
Abstract This paper examines the time-series behaviour of house prices for the four Asian
markets, namely, Hong Kong, Singapore, Tokyo and Taipei, by using structural time-series
methodology. The paper assumes two types of trend models to characterise and compare the
long-run movement of house prices. It also examines the cyclical pattern hidden in the series. The
long-run trend rate in these markets ranged between approximately 1.6 and 3.2 per cent per
annum. Hong Kong, Singapore and Taipei have relatively higher figures, which could be expected
in light of the rapidly growing economies. Surprisingly, their cyclical patterns were fairly similar,
although causes of the cycles differed. The markets were found to have stochastic cycles of around
one year, two to four years and seven to ten years, which were consistent with previous findings on
real business cycles commonly observed internationally in other macroeconomic time series.
However, the found stochastic nature suggests all these markets are not in a steady state and is still
changing.
Introduction
The housing market is one of the most volatile sectors of the economy and the
behaviour of house prices has attracted many attentions of research. Housing
research has always found the modeling of the long-run trends and short-run
fluctuations a great challenge. While most studies have tended to narrow in
house prices in their own countries, few have questioned on why most
countries share similar house price behaviour. One common phenomenon is the
sustained long-run growth in house price accompanied by recurring
fluctuations around the growth path. While Korea, Singapore, Malaysia and
Japan, and to a lesser extent in Australia, Canada, USA and West European
countries have seemed to have very similar periods of rapid growth in property
prices, their short-run fluctuations surrounding the long-run growth paths have
been vastly different. In most countries short-term deviations from the long run
growth paths are equally pronounced features of these price series.
A great number of house price studies has been done in the past few
decades, but most of these studies focus on a single country. Multi-country
The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at
www.em eraldinsight.com/res earchregister www.em eraldinsight .com/1463-578X .htm
House prices in
Asian markets
55
Journal of Property Investment &
Finance
Vol. 22 No. 1, 2004
pp. 55-75
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/14635780410525144
comparison of house price behaviour and its causes are rare, exceptions being
Kennedy and Anderson (1994), who investigated the relationship between
house price and savings, and Culter (1995), who compares the UK and other G7
countries and found that all these countries experienced exceptional increase in
house prices during second half of the 1980s. Recently, Englund and Ioannides
(1997) have compared the dynamics of house prices in 15 OECD countries and
revealed a remarkable degree of similarity. They find significant structure of
autocorrelation, but though their study reveals the similarity and is not able to
explain the causes. Bordo and Jeanne (2002) examine the boom and bust of
asset prices for 15 OECD countries but only focus on the impact of monetary
policy on asset prices.
While comparative studies of causal links between house prices and
macroeconomic variables are important, a large proportion of house price
volatility, well in excess of 50 per cent, is endogenous to the market.
Existing studies of autocorrelation structures have found highly significant
first-order correlations and oscillatory behaviour around a trend in most
house price series. Unfortunately, this simple approach used in these
studies limit their scope and is unable to yield deeper insights into the
nature of trend, and cyclical components of time series. One common
problem in these studies is that they do not investigate the underlying
causes of the similarity in house price behaviour internationally. Such an
investigation may have been limited in part by the great number of
countries involved.
Globalization has made international investment very important, particular
property investment (Wilson and Okunev, 1996). Property investment has
traditionally been considered good investment, with property playing an
important role in most Asian economies and housing being a form of savings
for many households. Changes in property prices influence consumer price
inflation, and affect a countries’ competitiveness. This paper focuses four
important property markets in Asian, Hong Kong, Singapore, Tokyo (Japan)
and Taipei (Taiwan) because they have experienced persistent and large
fluctuations and because they can serves as a barometer of economic activity in
the region.
In this paper, using the Structural Time Series (STS) methodology suggested
by Harvey (1989) and Harvey and Shephard (1993), we study international
house price behaviour. We first attempted to characterise the long-run
behaviour of house prices in the four Asian markets and determine which
structural time-series long-run trend would best describe long-run behaviour of
house prices there. We hope to understand the long-run movement of these
markets through STS estimation. Second, we tried to characterise the short-run
cyclical behaviour in the four markets and determine cycles hidden in the
short-run movement of house prices there. In our effort to understand better the
JPIF
22,1
56
To continue reading
Request your trial