Title：Asymmetric Income Shock and Bankruptcy: Evidence from Mispricing in Singapore’s Private Housing Markets
Speaker：Fan Ying, The Hong Kong Polytechnic University
Time：October 26th 2020, 13:30-15:00
About the speaker：
Dr. Fan Ying is an Assistant Professor at the Department of Building and Real Estate, The Hong Kong Polytechnic University. Prior to joining PolyU, she was a research fellow at the National University of Singapore and a visiting scholar at the University of Wisconsin-Madison. Her major research interests are in real estate economics and household finance, specializing in housing price dynamics, household consumption and housing demand under uncertainty, household mortgage choice and risk management. She has published in Real Estate Economics, Regional Science and Urban Economics, Journal of Housing Economics, The Journal of Real Estate Finance and Economics, China Economic Review, etc. She obtained her PhD degree in Real Estate Economics and Management at Tsinghua University in 2018.
This paper examines the impact of mispricing in housing transactions on personal bankruptcy through the “financial distress” and “overconfidence” channels. Using the merged data comprising housing transactions, individual bankruptcy filings, and lawsuit events in Singapore, we find that overpaying in housing transactions above the underlying values increases bankruptcy risks. More interestingly, we find individuals who purchase underpriced houses become “overconfident”, which induces them to take more risks, and consequentially increases their bankruptcy exposures. The “overconfidence” is observed in individuals who purchase multiple properties subsequently, commit to high debt obligations, and fail in entrepreneurial ventures. Applying a difference in differences approach by using the two policy shocks, we find that the expansion of housing credit via lowering the loan-to-value (LTV) limit has a positive impact on the bankruptcy risks of individuals who overprice in housing purchases. However, the easing of bankruptcy costs through the Debt Repayment Scheme (DRS) is found to have a positive impact on the bankruptcy risks of individuals who purchase underpriced houses. Our robustness tests reaffirm the asymmetric effects on bankruptcy risks in buyers of overpriced and underpriced houses.