1. Like Red Wine? The older, the better? Like Red Wine? The older, the better? Apartments in South of the Han River, Seoul

2. 2/14 1. Data Data are obtained through market surveys during July 2000 in the southern area of Seoul, the so-called Kang-Nam area, Seoul, Korea. Data are downloadable from Prof. Ryus HomePage Data are downloadable from Prof. Ryus HomePage http://ezstat.co.kr Click on Useful Data Set located on the left corner menu, and then download APTdata.xls (It is the first file on the list. Variable names are described in Korean. If you want to know them, either learn Korean or ask me.)

3. 3/14 2. Model I –size and age - Size measured in pyung(1 pyung=3.31 square meter) and age measured in years, affect Apartment price. size The bigger, the better age The newer, the better

4. 4/14 (apartment price) = 1 + 1 (size) + 2 (age) + (apartment price) = 1 + 1 (size) + 2 (age) + 2. Model I –size and age-

5. 5/14 Paradoxical results: The older, the better. We are talking about apartments, not red wines. Something wrong! There exist lurking variables, the 3rd variables, which are not controlled. 2. Results –size and age- (price) = -20,394 + 1,549 (size) + 0.76 (age) (price) = -20,394 + 1,549 (size) + 0.76 (age) The older, the better?

6. 6/14 Under developed Large scale development Large apartment complex 3. Model II –size, age, complex size- History of apartment construction in the sourthern part of Seoul Early Stage Saturation Well developed Small scale Small complex Apartment complex size differs systematically with AGE !!!

7. 7/14 3. Model II –size, age, complex size- Recently built apartments are located in a small complex apartment age complex size Soo-Seo area in Seoul: Due to political lobbying, a rather large complex was built in the 1990s, an outlier.

8. 8/14 3. Model II –size, age, complex size- Add complex size in addition to size and age, to explain apartment price. A larger complex is better facilitated in terms of schools, department stores, convenience shops. Due to scale economy, maintenance costs are in general lower. Also, liquidity is higher in the realtor market. complex size

9. 9/14 (price) = 1 + 1 (size) + 2 (age) + 3 (complex size) + (price) = 1 + 1 (size) + 2 (age) + 3 (complex size) + 3. Model II –size, age, complex size-

10. 10/14 3. Results –size, age, complex size- About 150-160 man yen (1 yen=10 won) per 1 pyung (about 3.31 square meter) Premium for those apartments that are newly built or located in a large complex. (price) = -20,291 + 1,538 (size) – 137 (age) + 2 (complex size) (price) = -20,291 + 1,538 (size) – 137 (age) + 2 (complex size) (unit=10,000 won=1,000 yen) (unit=10,000 won=1,000 yen)

11. 11/14 4. Model III – subway, brand - Add whether subway station is available nearby and whether the apartment unit is built by Samsung/Hyundai or not Subway=1 if there is a subway station within 10 minutes walking distance, and subway=0 otherwise. Brand Dummy=1 if built by either Samsung or Hyundai, and =0 otherwise. There exists brand premium. Better designed, better equipped, etc. brand dummy subway dummy

12. 12/14 4. Model III – subway, brand - (apartment price) = 1 + 1 (size) + 2 (age) (apartment price) = 1 + 1 (size) + 2 (age) + 3 (complex size) + 4 (subway dummy) + 5 (brand dummy) + 3 (complex size) + 4 (subway dummy) + 5 (brand dummy)

13. 13/14 4. Results – subway, brand - Subway is priced implicitly at 100 man yen, and brand name is priced at 130 man yen. (apartment price) = -21,182 + 1,524 (size) -118 (age) (apartment price) = -21,182 + 1,524 (size) -118 (age) + 2 (complex size)+1,087 (subway) +1,300 (brand) + 2 (complex size)+1,087 (subway) +1,300 (brand)

14. Red Wine: The older, the better! Apartment in Seoul: Yes, the newer, the better! Red Wine: The older, the better! Apartment in Seoul: Yes, the newer, the better! The End