BRE Confidence Index for Residential Property (2005:Q2, June 2005) Presenter: Prof. Eddie C. M. Hui Research Centre for Construction and Real Estate Economics The Hong Kong Polytechnic University 29 June 2005 © The Hong Kong Polytechnic University All Rights Reserved.

Project Team Hong Kong Polytechnic University Hong Kong Baptist University Texas A&M University, USA University of Cambridge, UK Collaborators

Uniqueness of BRE Index Project It uses: Forward looking (predictive) approach – not based on historic data or price trends It focuses on:  Developmental changes in price expectations and confidence over time  Trends of housing demand, decisions and preferences It establishes: Time-series indices for different groups of housing participants It targets at: Residential property markets only We are: Independent, professional and experienced researchers in real estate economics

Research Methodology Method: Longitudinal telephone survey Questionnaire design: Simple and straight-forward, and worded in everyday Chinese Rating scale: 5-Point Likert Scale Sample: 23,000 randomized telephone numbers per survey Successful interviews: Aim at 1,000 per survey Pilot: Trial study before full-scale surveys Survey duration: 5 four-hour sessions in the evening Interviewers: 20 Independent and trained university students under close supervision Index computation: Based on non-equal weighted confidence scores of price expectations and sentimental questions Software used: Computer-Assisted Telephone Interviewing (CATI) and Statistical Package for the Social Sciences (SPSS)

Groups of Respondents A. Homeowner A1. Owner in market, considering purchase A2. Owner and conditional purchaser A3. Owner and non-buyer B. Non-homeowner B1. Non-owner in market, considering purchaser B2. Non-owner and conditional purchaser B3. Non-owner and non-buyer

Components of BRE Index 1.Investment rating 2.Timing to buy 3.Current housing prices 4.Expected housing price changes 5.Economic conditions 6.Job opportunities 7.Family income 8.Affordability of home purchase

Composition of Respondents (2005:Q2, June 2005)

Surveys Conducted DatesValid Samples Completed Interviews Response Rates (%) Dec 20033, March 20044, June 20045,5921, Sept 20044, Dec 20044,9321, March 20054,9421, June ,4761,

Impact of Interest Rate Hike (% of Respondents) HONHO Very significant Significant Neutral Insignificant Very insignificant Don’t know Total100

Existence of a “Bubble”? (% of Respondents) HONHO Agree Disagree Don’t know Total100

Forecast of Economic Conditions (% of Respondents) 3 Months1 Year3 Years HONHOHONHOHONHO Better & Much Better Same Worse & Much Worse Don’t Know Total 100

Forecast of Family Income (% of Respondents) 3 Months1 Year3 Years HONHOHONHOHONHO Greatly & Somewhat Increase Same Greatly & Somewhat Decrease Don’t Know Total 100

Forecast of Job Opportunities (% of Respondents) 3 Months1 Year3 Years HONHOHONHOHONHO Better & Much Better Same Worse & Much Worse Don’t Know Total 100

Forecast of Ability to Buy a Property (% of Respondents) 3 Months1 Year3 Year HONHOHONHOHONHO Better & Much Better Same Worse & Much Worse Don’t Know Total 100

Conclusions Public confidence in property market remained positive – despite recent increases in the interest rates. Housing prices were expected to increase very marginally, but the incentive to buy was still fragile. This negative attitude towards spending was expected to continue in the immediate future. Similar to past findings, in order of importance, family income, economic conditions and location were three most important factors affecting housing decision. The impact of recent interest rate hike on housing price expectations was potentially “insignificant”. The movements in housing prices would be affected mainly by the interest rate outlook. The increase in speculative demand for housing was of concern. The market was likely in a “bubble”, suggesting a greater risk of overheating in the market, in particular, in the upper market. Unless the increase in the interest rates is beyond peoples’ expectations, the market would remain stable in the foreseeable future.

Next Two Surveys Sept 2005 Dec 2005 RCCREE Website: BRE Index Project Website: index.htm

Q & A Thank You

Additional Information Investment Ratings (in percent) Survey No Very Good NeutralBad Very BadDK Total 1 (Dec03) (Mar04) (Jun04) (Sep04) (Dec04) (Mar 05) (Jun 05)

Additional Information Good / Bad time to Buy a Property (in percent) Survey No Very Good Somewhat Good Somewhat Bad Very BadDKTotal 1 (Dec03) (Mar04) (Jun04) (Sep04) (Dec04) (Mar 05) (Jun 05)

Additional Information Current Housing Prices (in percent) Survey No Extremely High Somewhat too High About Right Somewhat too Low Extremely LowDK Total 1 (Dec03) (Mar04) (Jun04) (Sep04) (Dec04) (Mar 05) (Jun 05)

Additional Information Expected Housing Prices in 3 Months (in percent) Survey NoRiseFallSameDKTotal 1 (Dec03) (Mar04) (Jun04) (Sep04) (Dec04) (Mar 05) (Jun 05)

Additional Information Expected Housing Prices in 3 Months (in percent) 1 (Dec03)2 (Mar04)3 (Jun04)4 (Sep04)5 (Dec04)6 (Mar 05) 7 (Jun 05) Above +20% % to +20% % to +10% % to +5% % to -5% % to -10% % to -20% Above -20% Don't Know Total 100

Additional Information Expected Changes in Housing Prices (in percent) Survey No Survey DateDec 03Mar 04Jun 04Sep 04Dec 04Mar 05Jun 05 Mean Value