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Please use this identifier to cite or link to this item: http://hdl.handle.net/10204/5473

Title: Bubbles in South African house prices and their impact on consumption
Authors: Das, S
Gupta, R
Kanda, PT
Keywords: South African housing market
House price bubble
Error correction model
Financial markets
House markets
South African house prices
Real estate
Issue Date: Apr-2011
Publisher: American Real Estate Society
Citation: Das, S, Gupta, R and Kanda, PT. 2011. Bubbles in South African house prices and their impact on consumption. Journal of Real Estate Literature, Vol 19(1), pp 69-91
Series/Report no.: Workflow request;7772
Abstract: This paper first tests for house price bubbles in the South African housing market, using quarterly data from 1969:Q2 to 2009:Q3, based on the unit root test developed by Phillips et al. (2007). This test not only allows us to detect whether a bubble exists or not, but also the date of emergence and collapse of the same. Our findings show evidence of house price bubbles in the large, medium and small-middle segments, as well as, the aggregate middle-segment of the South African housing market. There is, however, no evidence of bubbles in the luxury and a ordable segments of the market. We then estimate an Error Correction Model (ECM) to investigate the existence of spillover effects from the housing sector onto consumption. Results indicate of significant spillovers, though there is no evidence of the effect being higher during the bubble period. Finally, we disentangle the effects of the house price acceleration and deceleration on consumption in an effort to investigate whether or not consumption reacts asymmetrically to movements in house prices. We find that consumption responds significantly to the house price acceleration but not deceleration, with this effect also found to show no evidence of being higher during the identified bubble period. The asymmetric model is found to perform better both in terms of in-sample and out- of-sample performances, relative to the symmetric model. The fact that we do not observe consumption to be more responsive to house price acceleration (deceleration) during the bubble period is most likely due two reasons: First, the National Credit Act (NCA) number 34 implemented in 2005, which enforced responsible granting and use of credit and prohibited reckless awarding of credits (The Presidency, 2006), and; second the findings of recent studies depicting evidence of pronounced discretionary changes by the South African Reserve Bank (SARB) to counter the recent adverse movements in the financial markets.
Description: Copyright: 2011 American Real Estate Society. This is the post print version of the work. The definitive version is published in the Journal of Real Estate Literature, Vol 19(1), pp 69-91
URI: http://ares.metapress.com/content/96326577k8575631/
ISSN: 0927-7544
Appears in Collections:Environmental and resource economics
Logistics and quantitative methods
General science, engineering & technology

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