Do higher house prices indicate higher safety? Price volatility risk in major cities in Taiwan
Abstract
This study investigates the housing market in Taiwan, an emerging market with relatively severe housing price inflation. Using data from the first quarter of 1991 to the second quarter of 2017 for four cities in Taiwan, this study compares the risk transmission and sources of their housing prices. The results reveal that Taipei−Taiwan’s main financial hub−has the highest house prices among the four cities but maintains the lowest risk. Thus, in terms of price volatility risk, Taipei has the safest housing market among the studied cities. Other studies have discussed the potential housing price bubbles in regions with high housing prices but have been unable to explain the continual overheating of the housing markets. The findings of this study reveal that despite having the highest housing prices and the greatest potential bubble, the Taipei housing market has the lowest fluctuation risk, making it the safest market in terms of housing investment. The results of this study imply that Taiwan’s economic development is excessively concentrated in Taipei, causing people to bear low returns and high risk when purchasing real estate in other areas, in turn increasing the continual imbalance between regional housing markets.
First published online 12 March 2020
Keyword : Taiwanese housing market, housing market risk, the risk transmission, housing investment, the safest housing market
How to Cite
Chu, F.-N. ., & Tsai, I.-C. (2020). Do higher house prices indicate higher safety? Price volatility risk in major cities in Taiwan. International Journal of Strategic Property Management, 24(3), 165-181. https://doi.org/10.3846/ijspm.2020.12159
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Elder, J. (2003). An impulse-response function for a vector autoregression with multivariate GARCH-in-mean. Economics Letters, 79(1), 21−26. https://doi.org/10.1016/S0165-1765(02)00283-5
Eraslan, S. (2016). Safe-haven demand for housing in London. Economic Modelling, 58, 482−493. https://doi.org/10.1016/j.econmod.2015.12.022
Gallin, J. (2008). The long-run relationship between house prices and rents. Real Estate Economics, 36(4), 635−658. https://doi.org/10.1111/j.1540-6229.2008.00225.x
Gholipour, H. F., & Lean, H. H. (2017). Ripple effect in regional housing and land markets in Iran: implications for portfolio diversification. International Journal of Strategic Property Management, 21(4), 331−345. https://doi.org/10.3846/1648715X.2016.1272010
Glascock, J. L., Michayluk, D., & Neuhauser, K. (2004). The riskiness of REITs surrounding the October 1997 stock market decline. Journal of Real Estate Finance and Economics, 28(4), 339−354. https://doi.org/10.1023/B:REAL.0000018786.39272.fa
Habib, M. M., & Stracca, L. (2012). Getting beyond carry trade: what makes a safe haven currency? Journal of International Economics, 87(1), 50−64. https://doi.org/10.1016/j.jinteco.2011.12.005
Hafner, C. M., & Herwartz, H. (2006). Volatility impulse responses for multivariate GARCH models: an exchange rate illustration. Journal of International Money and Finance, 25(5), 719−740. https://doi.org/10.1016/j.jimonfin.2006.04.006
Hartzell, D., Hekman, J. S., & Miles, M. E. (1987). Real estate returns and inflation. Real Estate Economics, 15(1), 617−637. https://doi.org/10.1111/1540-6229.00407
Himmelberg, C., Mayer, C., & Sinai, T. (2005). Assessing high house prices: bubbles, fundamentals and misperceptions. Journal of Economic Perspectives, 19(4), 67−92. https://doi.org/10.1257/089533005775196769
Hott, C., & Monnin, P. (2008). Fundamental real estate prices: an empirical estimation with international data. Journal of Real Estate Finance and Economics, 36(4), 427−450. https://doi.org/10.1007/s11146-007-9097-8
Hulchanski, J. D. (1995). The concept of housing affordability: six contemporary uses of the housing expenditure‐to‐income ratio. Housing Studies, 10(4), 471−491. https://doi.org/10.1080/02673039508720833
Jiang, J., Marsh, T. L., & Tozer, P. R. (2015). Policy induced price volatility transmission: linking the U.S. crude oil, corn and plastics markets. Energy Economics, 52, 217−227. https://doi.org/10.1016/j.eneco.2015.10.008
Kang, H.-H., & Liu, S. B. (2014). The impact of the 2008 financial crisis on housing prices in China and Taiwan: a quantile regression analysis. Economic Modelling, 42, 356−362. https://doi.org/10.1016/j.econmod.2014.07.018
Karolyi, G. A. (1995). A multivariate GARCH model of international transmissions of stock returns and volatility: the case of the United States and Canada. Journal of Business & Economic Statistics, 13(1), 11−25. https://doi.org/10.1080/07350015.1995.10524575
Kopyl, K. A., & Lee, J. B.-T. (2016). How safe are the safe haven assets? Financial Markets and Portfolio Management, 30(4), 453−482. https://doi.org/10.1007/s11408-016-0277-5
Lee, J. (2003). Is there an East Asian housing culture? Contrasting housing systems of Hong Kong, Singapore, Taiwan and South Korea. Journal of Comparative Asian Development, 2(1), 3−19. https://doi.org/10.1080/15339114.2003.9678369
Le Pen, Y., & Sévi, B. (2010). Volatility transmission and volatility impulse response functions in European electricity forward markets. Energy Economics, 32(4), 758−770. https://doi.org/10.1016/j.eneco.2009.12.003
Li, W. D.-H. (2002). The growth of mass home ownership in Taiwan. Journal of Housing and the Built Environment, 17(1), 21−32. https://doi.org/10.1023/A:1014812822953
Lin, P.-T., & Fuerst, F. (2014). Volatility clustering, risk-return relationship, and asymmetric adjustment in the Canadian housing market. Journal of Real Estate Portfolio Management, 20(1), 37–46.
Liu, H.-H., & Chen, S.-H. (2016). Nonlinear relationships and volatility spillovers among house prices, interest rates and stock market prices. International Journal of Strategic Property Management, 20(4), 371−383. https://doi.org/10.3846/1648715X.2016.1191557
Malpezzi, S. (1999). A simple error correction model of house prices. Journal of Housing Economics, 8(1), 27−62. https://doi.org/10.1006/jhec.1999.0240
Pavlidis, E., Yusupova, A., Paya, I., Peel, D., Martínez-García, E., Mack, A., & Grossman, V. (2016). Episodes of exuberance in housing markets: in search of the smoking gun. Journal of Real Estate Finance and Economics, 53(4), 419−449. https://doi.org/10.1007/s11146-015-9531-2
Ranaldo, A., & Söderlind, P. (2010). Safe haven currencies. Review of Finance, 14(3), 385−407. https://doi.org/10.1093/rof/rfq007
Rubens, J., Bond, M., & Webb, J. (1989). The inflation-hedging effectiveness of real estate. Journal of Real Estate Research, 4(2), 45−55.
Scatigna, M., Szemere, R., & Tsatsaronis, K. (2014). Residential property price statistics across the globe. BIS Quarterly Review, 73, 61−76.
Sogiakas, V., & Karathanassis, G. (2015). Informational efficiency and spurious spillover effects between spot and derivatives markets. Global Finance Journal, 27, 46−72. https://doi.org/10.1016/j.gfj.2015.04.004
Teng, H.-J., Chang, C.-O., & Chau, K. W. (2013). Housing bubbles: a tale of two cities. Habitat International, 39, 8−15. https://doi.org/10.1016/j.habitatint.2012.10.009
Tsai, I.-C. (2015). Monetary liquidity and the bubbles in the U.S. housing market. International Journal of Strategic Property Management, 19(1), 1−12. https://doi.org/10.3846/1648715X.2014.973465
Tsai, I.-C. (2018). Housing price convergence, transportation infrastructure and dynamic regional population relocation.
Habitat International, 79, 61−73. https://doi.org/10.1016/j.habitatint.2018.07.004
Tsai, I.-C., & Peng, C.-W. (2011). Bubbles in the Taiwan housing market: the determinants and effects. Habitat International, 35(2), 379−390. https://doi.org/10.1016/j.habitatint.2010.11.010
Tsai, I.-C., & Chiang, S.-H. (2018). Risk transfer among housing markets in major cities in China. Sustainability, 10(7), 2386. https://doi.org/10.3390/su10072386
Vishwakarma, V. K. (2015). The dynamics of risk premium: the case of the Taiwan real estate market. Journal of Risk Finance,
16(4), 463−482. https://doi.org/10.1108/JRF-02-2015-0020
Weng, Y., & Gong, P. (2017). On price co-movement and volatility spillover effects in China’s housing markets. International Journal of Strategic Property Management, 21, 240−255. https://doi.org/10.3846/1648715X.2016.1271369
White, M. (2015). Cyclical and structural change in the UK housing market. Journal of European Real Estate Research, 8(1), 85−103. https://doi.org/10.1108/JERER-02-2014-0011
Andreasson, P., Bekiros, S., Nguyen, D. K., & Uddin, G. S. (2016). Impact of speculation and economic uncertainty on commodity markets. International Review of Financial Analysis, 43, 115−127. https://doi.org/10.1016/j.irfa.2015.11.005
Andersen, T. G., Bollerslev, T., Diebold, F. X., & Vega, C. (2007). Real-time price discovery in global stock, bond and foreign exchange markets. Journal of International Economics, 73(2), 251−277. https://doi.org/10.1016/j.jinteco.2007.02.004
Baele, L., Bekaert, G., & Inghelbrecht, K. (2010). The determinants of stock and bond return comovements. Review of Financial Studies, 23(6), 2374−2428. https://doi.org/10.1093/rfs/hhq014
Barros, C. P., Gil-Alana, L. A., & Payne, J. E. (2015). Modeling the long memory behavior in U.S. housing price volatility. Journal of Housing Research, 24(1), 87−106.
Bekiros, S. D. (2014). Exchange rates and fundamentals: comovement, long-run relationships and short-run dynamics. Journal of Banking & Finance, 39, 117−134. https://doi.org/10.1016/j.jbankfin.2013.11.007
Belke, A. H., Orth, W., & Setzer, R. (2008). Global liquidity and house prices: a VAR analysis for OECD countries. Paper presented at the 21st Australasian Finance and Banking Conference, Sydney, Australia. https://doi.org/10.2139/ssrn.1096525
Bourassa, S. C., Hoesli, M., & Oikarinen, E. (2019). Measuring house price bubbles. Real Estate Economics, 47(2), 534−563. https://doi.org/10.1111/1540-6229.12154
Cesa‐Bianchi, A., Cespedes, L. F., & Rebucci, A. (2015). Global liquidity, house prices, and the macroeconomy: evidence from advanced and emerging economies. Journal of Money, Credit and Banking, 47(S1), 301−335. https://doi.org/10.1111/jmcb.12204
Chandler, D., & Disney, R. (2014). The housing market in the United Kingdom: effects of house price volatility on households. Fiscal Studies, 35(3), 371–394. https://doi.org/10.1111/j.1475-5890.2014.12034.x
Chang, C.-O., & Chen, M.-C. (2015). Taiwan: housing bubbles and affordability. In A. Bardhan, R. H. Edelstein, & C. A. Kroll (Eds.), Global housing markets: crises, policies, and institutions (pp. 447−463). Wiley. https://doi.org/10.1002/9781119200505.ch20
Chen, M.-C., Tsai, I.-C., & Chang, C.-O. (2007). House prices and household income: do they move apart? Evidence from Taiwan. Habitat International, 31(2), 243−256. https://doi.org/10.1016/j.habitatint.2007.02.005
Ciner, C., Gurdgiev, C., & Lucey, B. M. (2013). Hedges and safe havens: an examination of stocks, bonds, gold, oil and exchange rates. International Review of Financial Analysis, 29, 202−211. https://doi.org/10.1016/j.irfa.2012.12.001
Conrad, C., & Karanasos, M. (2006). The impulse response function of the long memory GARCH process. Economics Letters, 90(1), 34−41. https://doi.org/10.1016/j.econlet.2005.07.001
Coskun, Y., Seven, U., Ertugrul, H. M., & Alp, A. (2020). Housing price dynamics and bubble risk: the case of Turkey. Housing Studies, 35(1), 50−86. https://doi.org/10.1080/02673037.2017.1363378
De Vries, P., & Boelhouwer, P. (2009). Equilibrium between interest payments and income in the housing market. Journal of Housing and the Built Environment, 24(1), 19−29. https://doi.org/10.1007/s10901-008-9131-z
Dicle, M. F., & Levendis, J. (2017). Hedging market volatility with gold. Quantitative Finance and Economics, 1(3), 253−271. https://doi.org/10.3934/QFE.2017.3.253
Elder, J. (2003). An impulse-response function for a vector autoregression with multivariate GARCH-in-mean. Economics Letters, 79(1), 21−26. https://doi.org/10.1016/S0165-1765(02)00283-5
Eraslan, S. (2016). Safe-haven demand for housing in London. Economic Modelling, 58, 482−493. https://doi.org/10.1016/j.econmod.2015.12.022
Gallin, J. (2008). The long-run relationship between house prices and rents. Real Estate Economics, 36(4), 635−658. https://doi.org/10.1111/j.1540-6229.2008.00225.x
Gholipour, H. F., & Lean, H. H. (2017). Ripple effect in regional housing and land markets in Iran: implications for portfolio diversification. International Journal of Strategic Property Management, 21(4), 331−345. https://doi.org/10.3846/1648715X.2016.1272010
Glascock, J. L., Michayluk, D., & Neuhauser, K. (2004). The riskiness of REITs surrounding the October 1997 stock market decline. Journal of Real Estate Finance and Economics, 28(4), 339−354. https://doi.org/10.1023/B:REAL.0000018786.39272.fa
Habib, M. M., & Stracca, L. (2012). Getting beyond carry trade: what makes a safe haven currency? Journal of International Economics, 87(1), 50−64. https://doi.org/10.1016/j.jinteco.2011.12.005
Hafner, C. M., & Herwartz, H. (2006). Volatility impulse responses for multivariate GARCH models: an exchange rate illustration. Journal of International Money and Finance, 25(5), 719−740. https://doi.org/10.1016/j.jimonfin.2006.04.006
Hartzell, D., Hekman, J. S., & Miles, M. E. (1987). Real estate returns and inflation. Real Estate Economics, 15(1), 617−637. https://doi.org/10.1111/1540-6229.00407
Himmelberg, C., Mayer, C., & Sinai, T. (2005). Assessing high house prices: bubbles, fundamentals and misperceptions. Journal of Economic Perspectives, 19(4), 67−92. https://doi.org/10.1257/089533005775196769
Hott, C., & Monnin, P. (2008). Fundamental real estate prices: an empirical estimation with international data. Journal of Real Estate Finance and Economics, 36(4), 427−450. https://doi.org/10.1007/s11146-007-9097-8
Hulchanski, J. D. (1995). The concept of housing affordability: six contemporary uses of the housing expenditure‐to‐income ratio. Housing Studies, 10(4), 471−491. https://doi.org/10.1080/02673039508720833
Jiang, J., Marsh, T. L., & Tozer, P. R. (2015). Policy induced price volatility transmission: linking the U.S. crude oil, corn and plastics markets. Energy Economics, 52, 217−227. https://doi.org/10.1016/j.eneco.2015.10.008
Kang, H.-H., & Liu, S. B. (2014). The impact of the 2008 financial crisis on housing prices in China and Taiwan: a quantile regression analysis. Economic Modelling, 42, 356−362. https://doi.org/10.1016/j.econmod.2014.07.018
Karolyi, G. A. (1995). A multivariate GARCH model of international transmissions of stock returns and volatility: the case of the United States and Canada. Journal of Business & Economic Statistics, 13(1), 11−25. https://doi.org/10.1080/07350015.1995.10524575
Kopyl, K. A., & Lee, J. B.-T. (2016). How safe are the safe haven assets? Financial Markets and Portfolio Management, 30(4), 453−482. https://doi.org/10.1007/s11408-016-0277-5
Lee, J. (2003). Is there an East Asian housing culture? Contrasting housing systems of Hong Kong, Singapore, Taiwan and South Korea. Journal of Comparative Asian Development, 2(1), 3−19. https://doi.org/10.1080/15339114.2003.9678369
Le Pen, Y., & Sévi, B. (2010). Volatility transmission and volatility impulse response functions in European electricity forward markets. Energy Economics, 32(4), 758−770. https://doi.org/10.1016/j.eneco.2009.12.003
Li, W. D.-H. (2002). The growth of mass home ownership in Taiwan. Journal of Housing and the Built Environment, 17(1), 21−32. https://doi.org/10.1023/A:1014812822953
Lin, P.-T., & Fuerst, F. (2014). Volatility clustering, risk-return relationship, and asymmetric adjustment in the Canadian housing market. Journal of Real Estate Portfolio Management, 20(1), 37–46.
Liu, H.-H., & Chen, S.-H. (2016). Nonlinear relationships and volatility spillovers among house prices, interest rates and stock market prices. International Journal of Strategic Property Management, 20(4), 371−383. https://doi.org/10.3846/1648715X.2016.1191557
Malpezzi, S. (1999). A simple error correction model of house prices. Journal of Housing Economics, 8(1), 27−62. https://doi.org/10.1006/jhec.1999.0240
Pavlidis, E., Yusupova, A., Paya, I., Peel, D., Martínez-García, E., Mack, A., & Grossman, V. (2016). Episodes of exuberance in housing markets: in search of the smoking gun. Journal of Real Estate Finance and Economics, 53(4), 419−449. https://doi.org/10.1007/s11146-015-9531-2
Ranaldo, A., & Söderlind, P. (2010). Safe haven currencies. Review of Finance, 14(3), 385−407. https://doi.org/10.1093/rof/rfq007
Rubens, J., Bond, M., & Webb, J. (1989). The inflation-hedging effectiveness of real estate. Journal of Real Estate Research, 4(2), 45−55.
Scatigna, M., Szemere, R., & Tsatsaronis, K. (2014). Residential property price statistics across the globe. BIS Quarterly Review, 73, 61−76.
Sogiakas, V., & Karathanassis, G. (2015). Informational efficiency and spurious spillover effects between spot and derivatives markets. Global Finance Journal, 27, 46−72. https://doi.org/10.1016/j.gfj.2015.04.004
Teng, H.-J., Chang, C.-O., & Chau, K. W. (2013). Housing bubbles: a tale of two cities. Habitat International, 39, 8−15. https://doi.org/10.1016/j.habitatint.2012.10.009
Tsai, I.-C. (2015). Monetary liquidity and the bubbles in the U.S. housing market. International Journal of Strategic Property Management, 19(1), 1−12. https://doi.org/10.3846/1648715X.2014.973465
Tsai, I.-C. (2018). Housing price convergence, transportation infrastructure and dynamic regional population relocation.
Habitat International, 79, 61−73. https://doi.org/10.1016/j.habitatint.2018.07.004
Tsai, I.-C., & Peng, C.-W. (2011). Bubbles in the Taiwan housing market: the determinants and effects. Habitat International, 35(2), 379−390. https://doi.org/10.1016/j.habitatint.2010.11.010
Tsai, I.-C., & Chiang, S.-H. (2018). Risk transfer among housing markets in major cities in China. Sustainability, 10(7), 2386. https://doi.org/10.3390/su10072386
Vishwakarma, V. K. (2015). The dynamics of risk premium: the case of the Taiwan real estate market. Journal of Risk Finance,
16(4), 463−482. https://doi.org/10.1108/JRF-02-2015-0020
Weng, Y., & Gong, P. (2017). On price co-movement and volatility spillover effects in China’s housing markets. International Journal of Strategic Property Management, 21, 240−255. https://doi.org/10.3846/1648715X.2016.1271369
White, M. (2015). Cyclical and structural change in the UK housing market. Journal of European Real Estate Research, 8(1), 85−103. https://doi.org/10.1108/JERER-02-2014-0011