 *University of Salford School of the built Environment **University of Ulster Built Environment Research Institute Ali Parsa*, Jim Berry**, Alona Martinez-Perez** Research and Forecasts in real estate - Symposium (Room N03) Chair: Sotiris Tsolacos

Proposed Discussion 2 Causes and Determinants of land and property cycles: The bubble phenomenon and its consequences in Spain – Lessons from Japan?

QUESTIONS 3 ① What are the causes and determinants of LAND AND PROPERTY CYCLES? ② The BUBBLE PHENOMENON? ③ The consequences for Spain - is this long term ④ JAPANESE BUBBLE experience – What can we learn? “the lost decade” syndrome

REAL ESTATE UBBLES 4 Defining a real estate bubble: Three broad categories. From a statistical point of view, a real estate bubble is an abnormally high trough-to-peak price rise [e.g., a price increase that falls in the top quintile of previous price increases (IMF, 2003). According to this definition, a price boom caused by a prolonged growth in income qualifies as a bubble. The second definition for real estate bubbles calls for the price of the asset in question to exceed its fundamental value by a large margin [see Cochrane (2001). However, if market participants view the expectation of future gains as a fundamental reason to buy a house, the resulting price boom followed by a bust may not necessary qualify as a bubble. In other words, if prices at any given time reflect all available information, a bubble cannot exist because the houses are all efficiently priced. Cited in Daniel Ferna´ndez-Kranz & Mark T. Hon 2006

 REAL ESTATE BUBBLES The third definition pegs the price of assets to its long-term equilibrium level (Kim and Suh, 1993; Gallin, 2003). According to this characterization, a price boom caused by a transitory demand shock qualifies as a bubble. Cited in Daniel Ferna´ndez-Kranz & Mark T. Hon 2006

 The linkage between the real estate market and the general conditions of the economy has been studied extensively. However, most academic research is focused on the ways in which economic fundamentals affect property prices or the ways in which expectations about fundamentals affect property markets. (SeeMankiw andWeil, 1989, for a celebrated example of this research.)  Research also compares the importance of economic fundamentals, relative to the importance of history, in affecting outcomes in the real estate market (Quigley 2001) 6

CAUSES AND DETERMINENTS  CAUSES and DETERMINENTS?  Banking and financial  Policy and Regulative responses  Land use and planning  Cultural norms – perception of real estate (land and property) by corporations and by the society at large (Japanese and Italian)  Corporate conduct – market practice and transparency, valuation  Internal and external factors? 7

METHODOLOGICAL ISSUES 8  Mixed Method Research Strategy allows triangulation from sources: Theoretical constructs – which theories Macro economic models? i. qualitative – empirical evidence – institutional issues interviews, case studies + ii quantitative – statistical data analysis - challenges time series data, consistency of data, critical sources and transparency utilising macro-economic and property market data,  Holistic approach: Learning the lessons for economic and real estate – institutional, financial and real estate sectors, development/investment decision making extending to different countries, international comparison and transferability, cultures and disciplines