Author: Ervi LiusmanPublisher: Open Dissertation Press
ISBN: 9781374670457
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Languages : en
Pages :
Book Description
This dissertation, "The Effect of Land Supply Restriction on the Risk of Hong Kong Indirect Real Estate" by Ervi, Liusman, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: Abstract of thesis entitled The Effect of Land Supply Restriction on the Risk of Hong Kong Indirect Real Estate Submitted by LIUSMAN ERVI for the degree of Doctor of Philosophy at the University of Hong Kong in September 2007 From 1984 to 1997, the Hong Kong Government was restricted, under Annex III of the Sino British Joint Declaration, to granting new developable land of no more than 50 hectares per year. This artificial constraint provides an excellent opportunity to test how restricting the supply of new developable land, which is free of pre-development risk, affects the risks faced by listed real estate companies, the most common form of indirect real estate in Hong Kong. I have used quarterly data from the second quarter of 1978 through the fourth quarter of 2005 to estimate the multifactor variance decomposition models. The models allowed us to examine the relative contribution of local common stocks, direct real estate, interest rates, global stocks, and idiosyncratic (unexplained) factors to the observed volatility or risk of indirect real estate for the entire observation period and sub-periods during which new land supplies were restricted (1984- 1997) and not restricted (1978-1984 and 1997-2005). My empirical results showed that there was a significant increase in idiosyncratic risk for all indirect real estate from 1984 to 1997. This supported my prediction that new land supply restrictions will result in an increase in the idiosyncratic risk of indirect real estate. Restrictions of new land supplies forced developers to look for alternative sources of land for development, such as redeveloping or changing the use of land and other development constraints. To assemble land for redevelopment and to obtain approval from various authorities to develop these alternative sources of land is a dubious task, and the outcomes are unpredictable. Such uncertainty is priced in the indirect real estate market and manifests itself as a source of volatility not explained by the factors in the variance decomposition model. Another implication of my theoretical analysis is that real estate companies that are more involved in real estate development (as oppose to real estate investment) experienced a larger increase in idiosyncratic risk from 1984 to 1997. My empirical results, which were based on an analysis of all the real estate companies that were listed throughout the entire observation period (the second quarter of 1978 through the fourth quarter of 2005) in Hong Kong, are consistent with this implication. The findings of this study are applicable to situations in which there is a change in the ratio of new developable land (free of pre-development risk) to all sources of land for development (some of which may have incurred pre-development risk), whether due to a change in policy/legislation, physical constraints, or other reasons. When this ratio declines, the idiosyncratic risk of real estate development companies will increase, but the same has no effect on that of companies that are involved purely in real estate investment. This finding has important implications for policy makers, investors and decision makers of real estate companies. ii DOI: 10.5353/th_b3943371 Subjects: Real estate development - China - Hong Kong Land use, Urban - Government policy - China - Hong Kong Real estate in
