Essays on the housing market, foreign investment, and the stock market
: evidence in the UK, Canada, and China

Student thesis: Doctoral Thesis


In the global context of a soaring real estate market, many developed and developing countries have encountered tremendously fast growth in real estate prices. Historical data, however, shows many examples of countries suffering from severe market turbulence and economic loss after undergoing a sharp real estate price surge, followed by a slump. Accordingly, this study aims to provide three essays on the topic of the real estate market and two related sectors, namely, foreign investment and the stock market, within the context of the United Kingdom (UK), Canada, and China. The presence of housing bubbles, as well as the subsequent discussion of potential determinants of housing prices, foreign investment, and stock market movements, are analysed using various empirical models with the evidence from these three countries.

The first chapter examines the presence of a housing bubble using a combination of two empirical models, namely, the co-explosive VAR model and the recursive unit root tests, focusing on explosiveness in the asset bubble. We find clear evidence of housing bubbles in the UK and Canada and of one bubble in China until 2010, the end of the sample period. Therefore, it is of essential importance to discuss the determinants of housing price booms in the following two chapters. Chapter 2 investigates the topic of whether foreign direct investment (FDI) has a vital effect on the fluctuation of housing prices in the market by applying a structural VAR model. The main findings are that housing prices in the UK cannot be affected by FDI, although building construction in the UK has attracted substantial FDI inflow. Meanwhile, both housing prices and the housing supply in Canada have been positively affected by FDI. Comparably, in China, housing prices are negatively affected by FDI and positively affected by the housing supply, whereas the housing supply is positively affected by FDI. Finally, the last empirical chapter explores the sector of the stock real estate market, the real estate investment trust (REIT), and its relationship with the actual housing market using a structural VAR model. We do not find significant explanatory power of REITs on housing price fluctuations in the three countries, but REITs in the UK and Canada are positively affected by actual housing market movements, and REITs and the real estate market in China are positively affected by interest rate. Meanwhile, the general stock market price is one important explanatory factor for both housing price and REITs in the UK. Canadian housing prices have been dramatically negatively affected by monetary policy, while the Canadian REITs are also closely positively connected to the general stock market.

Overall, the findings suggest that housing markets in the UK, Canada, and China are highly prosperous, and the housing price growth trend considerably deviates from the fundamentals. In the UK, housing supply has been highly attractive to foreign investment, although housing prices have not yet been affected by FDI. Both the actual housing sector and REITs in the UK are closely and positively related to the general stock market, and in the UK, REITs reflect both housing and stock markets movements. In Canada, the housing and housing construction sectors are dramatically boosted by foreign investment, although REITs do not greatly influence the housing market. Similar to the UK, housing and general stock market activities have promoted the development of the REITs sector in Canada. Moreover, adjusting the interest rate is a powerful tool in controlling housing prices in Canada. In China, foreign investment has temporarily contributed to the housing supply via investments in real estate companies, causing a negative pressure on housing price. At the same time, since REITs are an emerging industry in China, no vital impact has yet been seen on the real estate market. In addition, REIT returns are not noticeably affected by housing price change, although interest rate adjustment in China can explain their movements significantly. Housing prices in China are positively affected by housing supply and interest rate, indicating a greater increase in demand than in supply in China. This is particularly the case in major cities, which have seen irrational and speculative investor behaviour in the purchase of properties.
Date of AwardDec 2019
Original languageEnglish
SupervisorRenatas Kizys (Supervisor), Ioannis Chatziantoniou (Supervisor), Renatas Kizys (Supervisor) & Ioannis Chatziantoniou (Supervisor)

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