The driving forces behind the recent housing market development in Hong Kong : fundamentals? bubbles? policy?

By examining the driving forces behind the recent housing market development in Hong Kong, this thesis offers an explanation for the effects of the ―Capital Investment Entrant Scheme‖ and the movements in the exchange rate between HKD and RMB on the housing prices of the overall market and two sub-markets. Induced by record-low mortgage rates and decreasing amount of new dwelling units completion, housing prices in Hong Kong surged to a record high level recently. To test the equilibrium price of housing, cointegration tests will be used to identify whether there is overvaluation in recent property market. At the end of 2010, result shows that there is no overvaluation of the overall market and two sub-markets. Besides, by using the vector error-correction model, result suggests that the ―Capital Investment Entrant Scheme‖ and appreciation of RMB against HKD have positive impact on the overall market and smaller units only. The last section will discuss current policies to curb speculation and to check housing price inflation. The discussion will focus on effectiveness of the special stamp duty and whether housing prices index futures would be a good alternative to the special stamp duty to curb speculation