Valuing Long-Term Property Rights with Anticipated Political Regime Shifts
Zhiguo He, Maggie Hu, Zhenping Wang, Vincent Yao
American Economic Review · 2024 · Volume 114 · Issue 9
Abstract
We identify exposure to political risk by exploiting a unique variation around land lease extension protection after 2047 in Hong Kong's housing market due to historical arrangements. Relative to properties that have been promised an extension protection, those with unprotected leases granted by the current government are sold at a discount of 8 percent; those with colonial leases suffer an additional discount of 8 percent. Incorporating estimated structural parameters that suggest an additional 20 percent ground rent after 2047, our model matches empirical discounts well across lease horizons. Discounts increase over time, particularly in areas with greater pessimism about the city's future.
Keywords
Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior, Asset Pricing, Trading Volume, Bond Interest Rates, Housing Supply and Markets, Production Analysis and Firm Location: Government Policy
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