1 BRE Confidence Index for Residential Property (December 2006 Survey) Presenter: Prof. Eddie C. M. Hui Research Centre for Construction and Real Estate Economics The Hong Kong Polytechnic University 5 January 2007 © The Hong Kong Polytechnic University All Rights Reserved.

2 Project Teams Hong Kong Polytechnic University Hong Kong Baptist University Texas A&M University, USA University of Cambridge, UK Collaborators

3 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 housing 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

4 Research Methodology Method: Longitudinal telephone survey Questionnaire design: Simple and straight-forward, and worded in everyday Chinese Rating scale: 5-Point Likert Scale Sample: 28,000 randomized telephone numbers per survey Successful interviews: Aim at 1,000 per survey Pilot: Trial study before full-scale surveys Survey duration: 6 four-hour sessions in the evening Interviewers: 20 independent and trained university students under close supervision Index computation: Based on non-equal weighted confidence scores of price expectations and sentimental questions Software used: Computer-Assisted Telephone Interviewing (CATI) and Statistical Package for the Social Sciences (SPSS)

5 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

6 Components of BRE Index 1.Rating for investment 2.Timing to buy 3.Current housing prices 4.Expected housing price changes 5.Expected economic conditions 6.Expected job opportunities 7.Expected family income 8.Affordability of home purchase

7 Composition of Respondents (Dec 2006 Survey)

8 Surveys Conducted DatesValid Samples Completed Interviews Response Rates (%) Dec 20033, March 20044, June 20045,5921, Sept 20044, Dec 20044,9321, March 20054,9421, June 20057,4761, Sept 20055,8931, Dec 20056,1531, Mar 20066,5371, June 20067,1651, Sept 20067,1251, Dec 20067,1881,

9 BRE Index (0-1000)

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18 Ranking of Factors HONHO SeptDecSeptDec Income1111 Location2223 Interest rate3332 Economic condition 4344 Developer5566 Rental6655 Land sale7777 Queue8888

19 Impact of Recent Land Sale (% of Respondents) HONHO Very significant Significant Neutral Insignificant Very insignificant Don’t know Total100

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21 Forecast of Economic Conditions (% of Respondents) 3 Months1 Year3 Years HONHOHONHOHONHO Better & Much Better 44.8 (36.9) 47.7 (33.2) Same47.4 (53.2) 44.0 (57.2) Worse & Much Worse 5.6 (6.7) 6.6 (8.0) Don’t Know2.2 (3.2) 1.7 (1.6) Total100 Figures in ( ) are results of Sept 2006 Survey

22 Forecast of Family Income (% of Respondents) 3 Months1 Year3 Years HONHOHONHOHONHO Greatly & Somewhat Increase 25.4 (19.8) 24.7 (20.4) Same 69.8 (73.4) 66.7 (73.2) Greatly & Somewhat Decrease 2.9 (4.4) 7.0 (4.8) Don’t Know 1.9 (2.4) 1.6 (1.6) Total 100 Figures in ( ) are results of Sept 2006 Survey

23 Forecast of Job Opportunities (% of Respondents) 3 Months1 Year3 Years HONHOHONHOHONHO Better & Much Better 20.2 (18.2) 22.6 (21.6) Same 60.4 (64.7) 59.7 (62.8) Worse & Much Worse 5.6 (6.8) 6.2 (8.4) Don’t Know 13.8 (10.3) 11.5 (7.2) Total 100 Figures in ( ) are results of Sept 2006 Survey

24 Forecast of Ability to Buy a Property (% of Respondents) 3 Months1 Year3 Year HONHOHONHOHONHO Better & Much Better 17.9 (16.6) 15.3 (10.0) Same 70.1 (72.6) 72.0 (76.8) Worse & Much Worse 7.1 (6.8) 7.8 (10.4) Don’t Know 4.9 (4.0) 4.9 (2.8) Total 100 Figures in ( ) are results of Sept 2006 Survey

25 Conclusions (1) Housing prices were expected to rise at a moderate pace of 2.5% in the next three months. Currently, the perceived high prices would continue to weaken the incentive to buy a real property. Over half of respondents thought the impact of the record high land sale prices in December 2006 was “insignificant” and “very insignificant” to the home purchase decision. The top-end market boom does not seem to have much impact on the mass market. The investment rating was reported “good” or “very good” by an average of 21% of respondents. Only a mere 3% of respondents tended to buy in three months. Apparently, the end of interest rate up-cycle has not lured more buyers to the market.

26 Conclusions (2) Following the previous trend, family income was the most important factor affecting home purchase decision, followed by location (for HOs) or interest rate (for NHOs). Family income was expected to “increase greatly” or “increase somewhat” by 25% of respondents (last survey: 20%). Continued improvement in employment conditions, economic outlook and job opportunities were expected to enhance price expectations further. Property prices were expected to rise at a steady pace in the mass market.

27 Next Two Surveys Mar 2007 Jun 2007 RCCREE Website: BRE Index Project Website: index.htm

28 Q & A Thank You