Examining the Impacts of the Pandemic on the Housing Bubble in Hong Kong

Edward C. H. Tang
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Edward C. H. Tang: Department of Economics and Finance, Hong Kong Shue Yan University

Advances in Decision Sciences, 2024, vol. 28, issue 1, 27-46

Abstract: [Purpose] The COVID-19 pandemic has significantly disrupted the housing market in Hong Kong and created economic uncertainty and job losses. Therefore, this study aims to revisit the current housing bubble in Hong Kong and to check whether the pandemic is a shock that led to the burst of the housing bubble. The insights derived from this study are crucial for shaping future housing policies in response to such economic events. [Design/methodology/approach] This study utilizes four bubble testing techniques of right-tailed Augmented Dickey-Fuller (ADF) tests to examine the presence of a housing bubble and determine its starting and ending dates. [Findings] The findings reveal that COVID-19 triggered a significant negative shock to the housing market, leading to a bubble burst during the pandemic. Additionally, the analysis indicates a rise in negative equity cases following the burst, largely due to reliance on highly leveraged mortgage loans. [Originality/value] The novelty of this study lies in its use of inflation-adjusted real housing prices to detect the housing bubble. Furthermore, developers could use our findings to improve their selling strategies during the housing market downturn, which, in turn, adds valuable insights to the housing and financial literature. [Practical implications] This study highlights the financial risks associated with the burst of housing bubbles and provides valuable policy recommendations for stabilizing the housing market. The findings emphasize that financial institutions should reduce the credit risks linked to mortgage loan portfolios before negative equity cases increase. The study offers professionals in the housing and finance sectors insight into risk management strategies.

Keywords: Housing bubble; right-tailed ADF test; COVID-19 pandemic; developers (search for similar items in EconPapers)
JEL-codes: R21 R31 (search for similar items in EconPapers)
Date: 2024
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