HKs Property Stock Market - Case Study Example

Hong Kong has witnessed two bubbles and two recessions in the past, and the policymakers and economists have been looking for means to identify the bubble formation empirically to take proper initiatives to puncture the bubbles before they explode (Yiu, Yu & Jin 116). In recent years, there has been high demand and low supply in the HK housing market mainly due to low-interest rates. As the HK is likely to witness another housing market bubble, the HK government has taken various initiatives of market controls and due to this, housing prices had declined slightly.

Housing developers have started to offer more incentives and discounts, mainly to lure investors. Housing prices in HK soared emphatically immediately after the financial tsunami that happened in 2008. From the end of 2008 to the end of 2010, the housing price soared by about 50% in nominal terms in HK. Further, the year 1997 was conceived as the pinnacle of the “ housing bubble” period in HK. Due to misguided housing policy and because of the Asian Financial Crisis, the “ housing-bubble” ruptured and the magnitude of the price fall was to the extent of 66% from the pinnacle to the trough in 2003, which was not only a big surprise but was also exceptional.

(HKMA 2001). Volatility in housing prices definitely had great impacts on the HKs economy and also on the businesses and well-being of house owners. At the start of the poignant fall in housing prices in 1997, the HKs economy witnessed negative economic growth and also from general price deflation. Presently, the HK housing prices are approaching the 1997 record-high level price due to speculative activities, challenging government policy, large cash flow from mainland China which all assumed causes for fostering such a scenario.

Further, this research study will also study the Special Stamp Duty (SSD) which has been introduced by HK as its recent housing policy meant reducing speculation will also be analyzed. This thesis will further examine the long-run association between fundamental variables and the housing prices in HK.