Estimating Estate-Specific Price-to-Rent Ratios in Shanghai and Shenzhen: A Bayesian Approach

Jie Chen and Shawn Ni ()
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Jie Chen: HSBC (The Hong Kong and Shanghai Banking Corporation)

International Real Estate Review, 2011, vol. 14, issue 2, 208-239

Abstract: The price-to-rent ratio, a common yardstick for the value of housing, is difficult to estimate when rental properties are poor substitutes of owner-occupied homes. In this study, we estimate price-to-rent ratios of residential properties in two major cities in China, where urban high-rises (estates) comprise both rental and owner-occupied units. We conduct Bayesian inference on estate-specific parameters by using information of rental units to elicit priors of the unobserved rents of units sold in the same estate. We find that the price-to-rent ratios tend to be higher for low-end properties. We discuss economic explanations for the phenomenon and the policy implications.

Keywords: Housing price; Rents; Heterogeneity; Bayesian analysis (search for similar items in EconPapers)
JEL-codes: L85 (search for similar items in EconPapers)
Date: 2011
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