American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Valuing Long-Term Property Rights with Anticipated Political Regime Shifts
American Economic Review
vol. 114,
no. 9, September 2024
(pp. 2701–47)
Abstract
We identify exposure to political risk by exploiting a unique variation around land lease extension protection after 2047 in Hong Kong's housing market due to historical arrangements. Relative to properties that have been promised an extension protection, those with unprotected leases granted by the current government are sold at a discount of 8 percent; those with colonial leases suffer an additional discount of 8 percent. Incorporating estimated structural parameters that suggest an additional 20 percent ground rent after 2047, our model matches empirical discounts well across lease horizons. Discounts increase over time, particularly in areas with greater pessimism about the city's future.Citation
He, Zhiguo, Maggie Hu, Zhenping Wang, and Vincent Yao. 2024. "Valuing Long-Term Property Rights with Anticipated Political Regime Shifts." American Economic Review, 114 (9): 2701–47. DOI: 10.1257/aer.20211242Additional Materials
JEL Classification
- D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- G12 Asset Pricing; Trading Volume; Bond Interest Rates
- R31 Housing Supply and Markets
- R38 Production Analysis and Firm Location: Government Policy