BRE Confidence Index forResidential Property

(2005:Q2, June 2005)

Presenter: Prof. Eddie C. M. Hui

Research Centre for Construction and Real Estate EconomicsThe Hong Kong Polytechnic University

29 June 2005

© The Hong Kong Polytechnic University 2005. 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 e

veryday 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 cl

ose supervision• Index computation: Based on non-equal weighted confidence scores

of price expectations and sentimental questions• Software used: Computer-Assisted Telephone Interviewing (CATI) a

nd 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 rating2. Timing to buy3. Current housing prices4. Expected housing price changes5. Economic conditions6. Job opportunities7. Family income8. Affordability of home purchase

Composition of Respondents(2005:Q2, June 2005)

B2

8%

B3

30.5%

A3

33%

A2

8.6%

A1

8.4%

B1

11.5%

A1 A2 A3 B1 B2 B3

Surveys Conducted

Dates Valid Samples

Completed Interviews

Response Rates (%)

Dec 2003 3,515 810 23.04

March 2004 4,214 960 22.78

June 2004 5,592 1,176 21.03

Sept 2004 4,359 893 20.48

Dec 2004 4,932 1,156 23.43

March 2005 4,942 1,078 21.81

June 2005 7,476 1,120 14.98

BRE Index (0-1000)

513556587 603564556579 581620

688692685 688686690695699692 708714702

0100200300400500600700800

Homeowner Non-homeowner Overall

BRE In

dex

First Survey (Dec 2003) Second Survey (Mar 2004) Third Survey (J un 2004)Fourth Survey (Sept 2004) Fifth Survey (Dec 2004) Sixth Survey (Mar 2005)Seventh Survey (J un 2005)

Expected Percentage Changes in Housing Prices(Mean Value)

1.7

4.4

5.9

9.510.5

3.2

6.65.3

11.3

0

2

4

6

8

10

12

Homeowner Non-homeowner Overall

% o

f Cha

nges

3 Months 1 Year 3 Years

Property Investment Rating

0.5

7.4

2.6

31.4

20.4

37.7

24.9

10.1

2.32.8

28.131.8

0

5

10

15

20

25

30

35

40

Very Good Good Neutral Bad Very Bad Don't know

% o

f Res

pond

ents

Homeowner Non-homeowner

Expected Changes in Housing Prices in 3 Months

0.0

19.3 20.0

2.9

30.1

19.4 20.4

3.91.0

17.5

4.9

13.3

0.01.53.0

38.5

0.73.7

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

Above+20%

11% to20%

6% to10%

1% to5%

-1% to -5%

-6% to -10%

-11% to -20%

Above -20%

Don'tKnow

% o

f Res

ponden

ts

Homeowner Non-homeowner

Current Level of Housing Prices

2.16.3

23

1.9 5.1

56.5

35.1

70

0

10

20

3040

50

60

70

80

High & ExtremelyHigh

About Right Low & ExtremelyLow

Don't Know

% o

f R

esp

od

en

ts

Homeowner Non-homeowner

Existing and Preferred Flat Size in Sq. Ft.(Homeowner)

7.9

33

11

12.6

29.3

50.8

13.1

4.2

47.1

0

10

20

30

40

50

60

Type A (Up to 429) Type B (430-752) Type C (753-1075) Type D (1076-1720)

Type E (Over 1720)

% o

f R

esponden

ts

Existing Flat Size Preferred Flat Size

Existing and Preferred Flat Size in Sq. Ft.(Non-Homeowner)

47.9

19.8

1.4

52.1

2.3

24.9

6

34.6

5.55.5

0

10

20

30

40

50

60

Type A (Up to 429) Type B (430-752) Type C (753-1075) Type D (1076-1720) Type E (Over 1720)

% o

f R

esponden

ts

Existing Flat Size Preferred Flat Size

Factors Affecting Housing Decision(Homeowner)

0%

20%

40%

60%

80%

100%

Income EconomicCondition

Location InterestRate

Developer Rental Land Sale Queue

% o

f R

esponden

ts

Important & Very Important NeutralNot Important & Not at all Important Don't Know

Factors Affecting Housing Decision(Non-homeowner)

0%10%20%30%40%50%60%70%80%90%

100%

Income EconomicCondition

Location InterestRate

Rental Developer Land Sale Queue

% o

f R

esponden

ts

Important & Very Important NeutralNot Important & Not at all Important Don't Know

Impact of Interest Rate Hike(% of Respondents)

HO NHO

Very significant 3.1 0.5

Significant 13.6 16.6

Neutral 15.7 21.2

Insignificant 49.7 39.6

Very insignificant 12.1 7.8

Don’t know 5.8 14.3

Total 100 100

Timing to Buy a Real Property

18.3

0.5

20.7

4.23.13.7

70.765

10.13.7

0

10

20

30

40

50

60

70

80

3 months 6 months 1 year 3 years Don't know

% o

f Res

pond

ents

Homeowner Non-homeowner

Existence of a “Bubble”?(% of Respondents)

HO NHO

Agree 42.9 52.6

Disagree 44.0 33.6

Don’t know 13.1 13.8

Total 100 100

Forecast of Economic Conditions (% of Respondents)

3 Months 1 Year 3 Years

HO NHO HO NHO HO NHO

Better & Much Better

56.0 47.5 67.5 62.7 49.8 51.1

Same 37.7 44.2 15.7 21.7 8.4 13.4

Worse & Much Worse

3.7 6.0 4.2 6.0 2.6 4.1

Don’t Know 2.6 2.3 12.6 9.6 39.2 31.4

Total 100 100 100 100 100 100

Forecast of Family Income (% of Respondents)

3 Months 1 Year 3 Years

HO NHO HO NHO HO NHO

Greatly & Somewhat Increase

20.9 23.9 41.4 48.9 41.9 52.1

Same 73.8 68.7 45.5 36.9 22.0 21.2Greatly & Somewhat Decrease

3.7 4.6 4.7 2.8 7.3 1.8

Don’t Know 1.6 2.8 8.4 11.4 28.8 24.9Total 100 100 100 100 100 100

Forecast of Job Opportunities (% of Respondents)

3 Months 1 Year 3 Years

HO NHO HO NHO HO NHO

Better & Much Better

18.9 24.0 29.3 35.5 26.1 35.9

Same 67.0 52.5 51.8 35.5 34.6 17.6

Worse & Much Worse

5.8 5.5 5.8 5.5 4.7 5.5

Don’t Know 8.3 18.0 13.1 23.5 34.6 41.0

Total 100 100 100 100 100 100

Forecast of Ability to Buy a Property(% of Respondents)

3 Months 1 Year 3 Year

HO NHO HO NHO HO NHO

Better & Much Better

15.7 12.4 30.4 30.8 39.3 46.6

Same 69.1 72.4 54.5 51.6 27.8 23.0

Worse & Much Worse

7.3 7.4 5.7 4.2 5.7 3.2

Don’t Know 7.9 7.8 9.4 13.4 27.2 27.2

Total 100 100 100 100 100 100

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: http://www.bre.polyu.edu.hk/rccree/index.htm

BRE Index Project Website:

http://www.bre.polyu.edu.hk/research/bre_index/index.htm

Q & A

Thank You

Additional Information

Investment Ratings (in percent)SurveyNo

VeryGood Good Neutral Bad

Very Bad DK

Total

1 (Dec03) 3.6 25.2 32.2 27.6 4.7 6.7 100

2 (Mar04) 1.4 28 29.4 31.8 2.3 7.1 100

3 (Jun04) 1.8 24 32.9 31.6 2.3 7.4 100

4 (Sep04) 1.6 26.6 28.9 28.6 3.6 10.7 100

5 (Dec04) 3.4 24.8 31.4 28 1.9 10.5 100

6 (Mar 05) 2.6 34.0 31.8 24.8 0.5 6.3 100

7 (Jun 05) 1.7 29.7 34.6 22.8 2.4 8.8 100

Additional Information

Good / Bad time to Buy a Property (in percent)

SurveyNo

VeryGood

Somewhat Good

Somewhat Bad

Very Bad DK Total

1 (Dec03) 6.7 43.1 31.4 3.8 15 100

2 (Mar04) 1.8 41.8 36.6 3.2 16.6 100

3 (Jun04) 2.7 38.2 44.8 2.9 11.4 100

4 (Sep04) 2.1 39.6 39.8 2.9 15.6 100

5 (Dec04) 3.4 34.3 45.5 2.5 14.3 100

6 (Mar 05) 2.7 42.2 40.3 2.9 11.9 100

7 (Jun 05) 2.2 36.0 47.8 1.7 12.3 100

Additional Information

Current Housing Prices (in percent)

SurveyNo

Extremely High

Somewhat too High

About Right

Somewhat too Low

Extremely Low DK Total

1 (Dec03) 9.1 32.6 37.8 9 2.1 9.4 100

2 (Mar04) 15.4 35.7 33.8 5.7 0.2 9.2 100

3 (Jun04) 17.5 33.2 36.6 4.3 0.4 8 100

4 (Sep04) 16.9 40.4 32.1 3.9 1 5.7 100

5 (Dec04) 19.2 37.9 27.8 1.7 0.8 12.6 100

6 (Mar 05) 19.7 41.5 26.9 5.1 0.5 6.3 100

7 (Jun 05) 23.0 40.7 28.8 1.7 0.2 5.6 100

Additional Information

Expected Housing Prices in 3 Months (in percent)

SurveyNo Rise Fall Same DK Total

1 (Dec03) 42.9 6.8 27.2 23.1 100

2 (Mar04) 64.3 4.5 16.4 14.8 100

3 (Jun04) 36.7 8.8 43.1 11.4 100

4 (Sep04) 49 1.8 32.8 16.4 100

5 (Dec04) 52.6 3.4 26.1 17.9 100

6 (Mar 05) 56.8 2.2 21.8 19.2 100

7 (Jun 05) 32.9 7.8 10.5 48.8 100

Additional InformationExpected 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% 0 1.9 1.1 1.5 3.2 0 1.7

+11% to +20% 7.5 6.2 4.7 2.5 4.4 2.9 4.2

+6% to +10% 19.8 24.1 18.7 22.4 17.7 24.3 16.0

+1% to +5% 57.6 50.8 44.3 63.5 49.4 60.1 34.9

-1% to -5% 10.3 2.7 7.8 1.5 2.5 2.0 12.2

-6% to -10% 3.4 1.9 4.2 0.5 0.6 1.2 9.2

-11% to -20% 0 0 3.1 0 0 0 2.5

Above -20% 0 0 1 0 0 0 0.4

Don't Know 1.4 12.4 15.1 8.1 22.2 9.5 18.9

Total 100 100 100 100 100 100 100

Additional Information

Expected Changes in Housing Prices (in percent)

SurveyNo 1 2 3 4 5 6 7

Survey Date Dec 03 Mar 04 Jun 04 Sep 04 Dec 04 Mar 05 Jun 05

Mean Value 3.75 6.73 3.63 6.23 7.07 5.62 3.23

Best Lending Rate and S&P Agreement

4.6

4.8

5

5.2

5.4

5.6

5.8

6

Jan-04

Feb-04

Mar-04

Apr-04

May-04

Jun-04

Jul-04

Aug-04

Sep-04

Oct-04

Nov-04

Dec-04

Jan-05

Feb-05

Mar-05

Apr-05

May-05

BL

R (

% p

.a.)

0

2000

4000

6000

8000

10000

12000

14000

16000

Num

ber

of S

&P

BLR S&P

No. of S&P by Range of Consideration

0

500

1000

1500

2000

2500

3000

Jan-04

Feb-04

Mar-04

Apr-04

May-04

Jun-04

Jul-04

Aug-04

Sep-04

Oct-04

Nov-04

Dec-04

Jan-05

Feb-05

Mar-05

Apr-05

May-05

No.

of S

&P

($2m

- 3m

)

0

100

200

300

400

500

600

700

800

900

1000

No.

of S

&P

($10

m &

ove

r)

$2m - $3m $10m & over