Housing price bubbles in Beijing and Shanghai

Abstract

Purpose This study investigates whether there was a housing price bubble in Beijing and Shanghai in 2003. The existence of a bubble can be interpreted from (abnormal) interactions between housing prices and market fundamentals. Design/methodology/approach With monthly data from the two cities, this paper employs standard econometric methodologies: i.e. Granger causality tests and generalized impulse response analysis, and the reduced form of housing price determinants. Findings Our findings suggest that there appeared a bubble in Shanghai in 2003, accounting for 22 percent of the housing price. By contrast, Beijing had no sign of a bubble in the same year. The bubble phenomenon, of course, should not be taken without caution for the constraints of data. Nonetheless, this study has laid the ground work for further investigation into abnormal housing price phenomena in Mainland China. Originality/value Our findings may help foreign investors better understand the Chinese housing markets and make better housing investment decisions in the two cities.