An empirical study on the effect of climate change on the prices of the residential flats in the coastal areas in Hong Kong

Abstract

The intensifying climate change has triggered more destructive super typhoons, which is a threat to the residential flats in the coastal locations in Hong Kong. This drives the production of this dissertation aiming to investigate the empirical relationship between climate change and the prices of the coastal residential flats in Hong Kong. By treating the most devastating Super Typhoons Hato (23 August 2017) and Mangkhut (16 September 2018) as a single event that signals climate change, this study estimates the short-and long-term effect of the event on the prices of the directly affected and unaffected flats in Heng Fa Chuen as well as the nearby unaffected flats in Kornhill. The empirical results confirm all the hypotheses, H1: Super typhoons impose a negative effect on the prices of the residential flats directly affected by them; H1a: This negative effect does not diminish over time; H2: There is a negative spillover effect of super typhoons to the unaffected residential flats within the same residential development; H2a: This negative spillover effect increases over time; H3: There is a positive spillover effect of super typhoons to the nearby residential development unlikely to be affected by future super typhoons; H3a: This positive spillover effect increases over time; H4: Super typhoons depress the risk-adjusted returns on the prices of the affected coastal residential development. These empirical results suggest that super typhoons are not considered by buyers as rare special events and are expected be stronger and more frequent in the future due to climate change. Climate change is non-negligible in the residential pricing and the coastal residential development vulnerable to super typhoons in Hong Kong may be the risker investment tool to the prospective real estate investors. Additionally, further test has been conducted to compare the effect of the past strong typhoon and the recent super typhoons. It upholds that the prices of the affected coastal residential flats are not depressed by the past strong typhoon but only the recent super typhoons impose the persistent negative effect on their prices. This further test reflects the increasing risk perceptions of the recent buyers towards climate change and makes the empirical results of this study more robust. To sum up, this study has contributed to three main aspects. Academically, to the best of the author’s knowledge, this is the first study on the effect of climate change on the coastal residential property prices in Hong Kong. Practically, the persistent negative effect of super typhoons on the affected coastal residential flats may give some insights to the real estate investors and professionals on their investment strategies and valuation adjustments respectively. Lastly, there are three policy implications on the coastal areas in Hong Kong, namely the land use planning, the estimation on the land sales revenue, and the monitoring on the effectiveness of the improvement works on the coastal hazards in rebuilding the buyers’ confidence in the coastal residential flats affected by super typhoons with the aid of the price of Heng Fa Chuen as the indicator.