Bubble or Riddle? An Asset-Pricing Approach Evaluation on China’s Housing Market

Qu Feng and Guiying Wu ()

No 1501, Economic Growth Centre Working Paper Series from Nanyang Technological University, School of Social Sciences, Economic Growth Centre

Abstract: Rapid house price growth and high price-to-income ratio in major Chinese cities have aroused a hot debate on whether there is an asset bubble in China's residential housing market. To investigate this question, we employ an equilibrium asset-pricing approach, which suggests an non-arbitrage condition on the rent-to-price ratio. This ratio should be equal to the difference between the user cost of housing capital and the expected appreciation in house prices. Using a novel micro-level data set on pair-wise matched price-to-rent ratio collected in the fourth quarter of 2013, and forecasting the expected house price appreciation based on fundamental factors, our empirical exercises do not suggest the existence of a house price bubble at the national level. However, this conclusion highly depends on the expected income growth rate and may not apply to individual markets.

Keywords: House Prices; Asset Pricing Approach; Rent-to-Price Ratio (search for similar items in EconPapers)
JEL-codes: G12 R21 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2015-02
New Economics Papers: this item is included in nep-cna, nep-sea, nep-tra and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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Journal Article: Bubble or riddle? An asset-pricing approach evaluation on China's housing market (2015)
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