Economics and Finance

Our PhD students

Hui Zhi

  • Role Title: PhD student
  • Address: Richmond Building Portland Street Portsmouth PO1 3DE
  • Telephone: tbc
  • Email: tbc
  • Department: Economics and Finance
  • Faculty: Portsmouth Business School


Nationality:               Director of studies: Dr Konstantinos Vergos

Thesis title: Real Options and Housing Bubbles in China

Thesis summary

House prices of China have increased rapidly since the Chinese economic reforms. Since 1998, China stimulated urban housing system reform and accelerated real estate development with the legal framework enacted, including the rights of land use and land improvements privately, transferring ‘Welfare Housing’ into financial housing assistance, so that real estate services emerged. To do so, the free allocation of apartments had been abolished, instead of system with the allocation of house subsidies. Meanwhile, the issues of rapidly increasing house prices became serious social topics. Real estate had become a significant factor to stimulate the economy increases based on the optimistic returns. The goal of this research is to investigate how the real option can evaluate real estate properties in China and the examination of influencing factors. There are several sections analyzing the Chinese real estate market and the application of real options to land and house. This study will apply and improve the real options model developed by Quigg (1993), utilizing conventional real estate appraisal theory. The real option pricing model mainly assesses the prices of land and housing. Through valuing the real prices of land, a decision must be made whether to hold or develop the land and housing. The ‘General Auto Regressive Conditional Heteroskedasticity’ (GARCH) model will be established in order to investigate the volatility of house prices in China. The GARCH model mainly improves the investigation of unobserved factors influencing house price. This study will also model dummy fundamental economic variables of housing bubbles in order to investigate the reason for the volatility of house prices in China. Through analyzing the volatility of house prices and the fundamental economic variables, the ‘real’ prices of houses are able to be assessed. Research into the property price is dominated by the examination of the economic fundamentals effects to the property price, the property characteristics effects to the property price and the property demand effects to the property price. Spatial analysis are denoted that the house price in one region affected by house price in neighboring region, which is spill-over effects (spatial lag model); and house price in one region affected by neighboring regions with unobserved characteristics (spatial error model). Generally, the relationship between land and house prices and relationship among regions in spatial are analysed to test the presence of housing bubbles. We combine the empirical importance of economic effects and property characteristics effects from property prices and land price with methodology of Panel, VAR, Spatial and Real Options to make a contribution for householders, investors and regulators. Meanwhile, the co-integration relationship between house prices and the center of urban settlements such as Beijing is investigated. Additionally, the real estate market condition might be worth investigating to understand the relationship between house prices and the financial crisis.