Abstract
In this paper, we estimate hedonic price equations of Japanese commercial and residential land prices for a 25-year period and to investigate possible structural changes in these price equations. Our price equations are based on transaction prices, not appraised land values, of commercial land in Central Business Districts of Tokyo (Chiyoda Ward, Chuo Ward, and Minato Ward), and residential land of its suburb (Setagaya Ward). We find that price structure differs substantially among locations, reflecting differences in supplier pricing and end-user preferences. We also find significant structural changes in price structure, identifying pre-bubble, bubble and post-bubble periods.
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Notes
Japanese property markets have been plagued by imperfect information and various institutional rigidities, which contributed greatly to instability of property prices. See Nishimura (1999) and Shimizu et al. (2004) for analysis of imperfect information on price behavior. Shimizu and Nishimura (2006) examine price information available in the market and find a large bias in it.
In Japan, the Ministry of Land, Infrastructure, and Transport publishes Land Price Statistics, and the Japan Real Estate Institute publishes an Urban Land Price Index. These are based on appraisal values. No comprehensive information based on market transaction price is available.
Many sales comparables lack important information, such as the total transaction price and building value, as we discuss later. Furthermore, building value estimates can vary significantly across appraisers.
Shimizu (2004) showed that the return rate of the questionnaire survey in Setagaya Ward was about 20%. (The sample included Part Ownership of Building)
They have argued the necessity for property information disclosure for a long time, suggesting that Japan should disclose transaction price to the market participants under a systematic arrangement, as in the USA, the UK, and Germany.
The data for this study was provided by the Ministry of Land, Traffic, and Infrastructure.
We found several cases with identical locations and transaction conditions yet different transaction land prices. This was due to differences in the estimated building value, as is explained later.
This issue is crucial for the creditability of the transaction data collected by the appraisers and should be tackled urgently by the authorities.
The Land Registration Notice has been digitized in each prefecture since 1987. We used data from the Tokyo Metropolitan Government office.
The reasons for these exclusions are that, first, we could not plot the locations on the map because the information was not sufficiently accurate, and second, we could not identify the transactions from the Land Registry Notice record. Because of these problems, we could not measure the distance to the station and CBD. Shimizu (2004) pointed out the inaccuracies in measured distances in the recorded transaction data.
Garcia and Perron (1996) showed how to identify the changing points for two structural changes. Johan and Perron (1998) discussed the method of conducting a structural change test for unknown changing points of unknown frequencies. In our study, we used a simplified method for reasons of tractability.
We ignored possible structural change in their cross factors with railway dummies because preliminary investigation suggested that they did not have significant effects on regression analysis.
It is generally held that using the coefficient adjusted for the degrees of freedom to select the variables results in too many variables. In this study, the selection is made based on the AIC initially and then by Mallow’s CP to ensure the improvement of the model.
In property tax assessment, a bigger plot size is negatively adjusted in addition to the adjustment for depth.
The Tokyo Metropolitan Government showed that a great deal of residential land was converted to commercial land during the bubble period. After the boom, a lot of commercial land was converted back into residential use.
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Acknowledgement
The authors are grateful to a referee for his helpful comments and suggestions. This paper is based on a study completed when the second author was at the University of Tokyo before he joined the Policy Board of the Bank of Japan.
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Shimizu, C., Nishimura, K.G. Pricing Structure in Tokyo Metropolitan Land Markets and its Structural Changes: Pre-bubble, Bubble, and Post-bubble Periods. J Real Estate Finan Econ 35, 475–496 (2007). https://doi.org/10.1007/s11146-007-9052-8
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DOI: https://doi.org/10.1007/s11146-007-9052-8
Keywords
- Quality-adjusted real estate price index
- Hedonic approach
- Bubble economy
- Structure change
- Switching regression model