Hong Kong Property Cycle - A Frequency Domain Analysis

Abstract

Property cycle study is a popular topic in the current real estate literature, particularly when the market is near the peak or in low ebb. In this study, some of the stylized facts of the Hong Kong property cycle will be examined and high frequency (monthly) data, partly public and partly proprietary, will be used. Spectral analysis, uni-variate and bi-variate, will be employed to investigate individual cycle and co-movements of two different cycles respectively. Aperiodic movements of price and rental for various segments of the real estate market of Hong Kong are found. However it does not apply to the case of total returns. This result could have important implications for the investors who are thinking of investing in real estate: on an investment horizon of several years, they can buy near the trough and sell near the peak. Co-movements of the direct (various segments) and indirect real estate are also investigated and it is found that residential market is the one that carries the greatest coherence with the indirect market. Retail and office market follow in the pack and the industrial market is least coherent one.