Shanghai Real Estate Bubble In Empirical Research

Since 2000, the industry of Shanghai real estate has been prospering, representing the proportion of the industry value added to GDP up to 7.4 percent in 2003, from 5.5 percent in 2000. Furthermore the prices for real estate items are being up rapidly and the speculative demand for real estate booms, which result in hot dispute over real estate bubbles. This paper starts from the issue, and proceeds to research empirically on how to measure bubbles, probability of bubbles' burst, causes of the bubbles' existing and policies to managing bubbles.The paper first defines bubbles and bubbles economy, and argues that bubbles are nonstationary rises of the capital price as against the theoretical price because of monopoly and inflation of speculative demand, and that bubbles can be partitioned four phases, i.e. safety zone, alertness zone, danger zone and high danger zone. Generally, bubbles in safety zone play positive effect on economic growth, but how to partition four phases is depend on an accurate model of distinct economical system in different times. Also bubbles economy is that bubbles are at the phase of danger or high danger zone, while bubbles asset has very close relation to national or regional economy, and that bubbles burst will lead to financial or economical crisis.Secondly, the paper generalizes and comments on the arguments for bubbles or non-bubbles in Shanghai real estate. The essay holds that the arguments for non-bubbles are groundless, and refute such arguments as that the investment is mostly private and the consumption is mainly come from residents, as that the supply is in equilibrium with the demand and both are flourishing, as that the vacancy of house has been reducing, or that the house price in Tokyo or Hong Kong and orientation of world-class metropolis account for the rapid rise of house in Shanghai. Then assert that there exist bubbles but not bubbles economy in Shanghai real estate, because the proportion of investment in real estate to GDP is very higher which presents impulse investment, and price of house rise rapidly to the degree which is far from civilian's long payment capability, and the rent of house can't support price of house that imply the house long investment is profitless, speculative demand is approaching international security line, while the consumption blooms and consumption anticipation doesn't change radically.Thirdly, the paper has established three models that are dynamic autoregressive bubbles test model, cobweb model, econometric model. The dynamic autoregressive bubbles test model shows that the autoregressive parameter λ is 2.516%, which is very bigger than critical value 1.8%, proving the bubbles exist. The cobweb model demonstrates that the mechanism of real estate price's determining is nonstationary or characterizes diverging as positive feedback, which shows swelling of bubbles. The econometric model illuminates the bubbles in Shanghai real estate, because the demand of house is on the crest of the wave, and the future demand will be stationary, while the supply will keep up increasing rapidly, which will result in higher vacancy of new house in the next two year and going down of price. The econometric model indicates that the bubbles will be likely not to burst but to shrink if the Shanghai economy will keep up growing rapidly, and the income of residents will continue to go up, and speculation will have been controlled.Fourthly, the paper designs the indicator systems to evaluate degree of bubbles and a method of calculating the degree of bubbles, while partitioning bubbles as four phases, i.e. safety zone (03). According to this method, the degree of bubbles in Shanghai real estate can be calculated as 1.7, which means the bubbles is at the alertness zone and is approaching danger zone.Fifthly, the paper discusses the cause of bubbles' existing in Shanghai real estate. And argues that the integration of macro-environment, institutio...