Nexus between visitor arrivals and residential property rents in Hong Kong

Abstract

Cost of living in Hong Kong is among the highest in the world. This paper investigates the effect of tourist arrivals on the residential property market in Hong Kong. It is demonstrated that the soaring number of tourists from mainland China is pushing up property rents in Hong Kong. The substantial accommodation need generated by the increasing number of students from China is another contributing factor.

An instrumental variable approach to unveiling the determinants of flatted factory rent in Hong Kong

“…The instrumental variables (i) Dln(Visitor t ) (where Visitor denotes the number of visitor arrivals with data sourced from the Hong Kong Tourism Board) and (ii) NMI tÀ1 (where NMI denotes the natural logarithm of the non-manufacturing index for the US economy divided by 50 with data sourced from the CEIC Database) are proposed for studying the effects of Dln(RetailRent) and Dln(OfficeRent), respectively, on the explained variable Dln(FactoryRent) in Equation 2. Chong and Yiu (2019) find that using the number of visitor arrivals as an instrumental variable for real retail property rent is appropriate because the increasing number of tourists bolsters retail sales, which in turn, enables retailers to pay a higher rent. The performance of the US's non-manufacturing sector theoretically has no relationship with the manufacturing sector in China's Hong Kong and, therefore, it should not be related to the factory rent in Hong Kong as well.…”

“…Hong Kong has also been exporting increasing amounts of consumer goods, such as electronic devices, jewellery and pharmaceutical products, which are sold through retail shops. In addition, Chong and Yiu (2019) find that the residential market has also been affected by the growth of tourism in Hong Kong. Therefore, all these induce a greater demand for retail, office and residential spaces, and such a demand is accommodated by factory buildings due to the land scarcity issue in Hong Kong.…”

“…2 To the best of our knowledge, this study is the first to look into the determinants of factory rent in Hong Kong empirically. Regarding the methodology, an instrumental variable approach following Chong and Yiu (2019) is adopted to demonstrate causal linkage. As a leading international financial centre, Hong Kong has become more service-oriented over the past years and less existing factories built in the past are currently being used for their intended purpose.…”

“…Figure 2 depicts the trends of these variables. Following Chong and Yiu (2019), the number of visitor arrivals is adopted as an instrumental variable for retail property rent in order to demonstrate causal inference. As for office rent, the lagged non-manufacturing index that indicates the performance of non-manufacturing sector in the US is adopted as an instrumental variable to tackle the possible endogeneity problem.…”

Speculate a lot

“…The Individual Visit Scheme was introduced in the same year, which allowed visitors from the Mainland to visit Hong Kong on an individual basis. With the expansion of the tourism industry, the retail sales and business environment kept improving, which resulted in fast‐paced growth in real retail and office prices (Chong and Yiu, 2019). Since 2009, strong market sentiment existed in the housing market 14 and bubbles were found in real housing prices (Yiu et al ., 2013).…”