Long-term and Short-term Determinants of Property Prices in Hong Kong

Property prices in Hong Kong increased markedly in late 2007 and early 2008, raising concerns about the risk of overheating in the property market. In this paper, we use co-integration analysis to analyze the short- and long-run determinants of property prices in Hong Kong. We find that the long-run determinants include GDP per capita, real interest rate, land supply, and the residential investment deflator, which reflects the impact of inflation and real construction cost. In the short-run, property price is also affected by equity price. Based on this framework, we assess the market conditions in early 2008. We also do graphical and clustering analyses of six property market indicators to supplement the co-integration analysis.