THE CAUSAL RELATIONSHIPS BETWEEN RESIDENTIAL PROPERTY PRICES AND RENTALS IN HONG-KONG - 1982-1991

This study examines the causal relationships between sale price change s and rental rate changes in the Hong Kong real estate market. Three d ifferent hypotheses are put forth: 1) the demands in the two markets a re substitutes, 2) prices and rentals are positively correlated; and 3 ) prices and rentals are not correlated because of market segmentation . Using quarterly data of sale prices and rental rates for the five ca tegories of residential property from four different districts, causal relationships are not found in 29 cases out of 40. For the other 11 c ases, we find that price changes lead rental rate changes. The lag per iod is found to be one quarter, and this shows that the two markets ar e efficient: only one quarterly lag is necessary to establish causalit y where it exists.