Pricked by the Virus for good? Real Estate Bubbles and the Grand European Shutdown

Marko Malović; Miloš Roganović; Mustafa Özer

doi:10.7595/management.fon.2021.0023

Marko Malović Educons University, Novi Sad, Serbia
Miloš Roganović Faculty of Business, Economics and Entrepreneurship, Belgrade, Serbia
Mustafa Özer Anadolu University, Eskişehir, Turkey

DOI: https://doi.org/10.7595/management.fon.2021.0023

Abstract

Research Question: The objective of this particular piece of research was to evaluate the condition of the real estate market in the period preceding the pandemic outbreak. Motivation: Our goal was to determine whether real estate has been overpriced, i.e., whether and when speculative bubbles began to form and whether there were indications of their bursting. This paper brings together the need for discussing theories that can potentially explain the real estate market bubbles and boom-bust cycles (Gleaser &Nathanson, 2014) and the new approach which proved promising to detect the exuberance of economic and financial activities (Phillips, Shi &Yu, 2015). Potential collapse of real estate prices would have devastating effects and would likely cause a collapse of the financial system. Idea: The core idea of this paper was to evaluate whether speculative bubbles could be detected in the real estate market over the period immediately before the outbreak of the COVID-19 virus pandemic, and whether the pandemic or the financial crisis arising from it led to bursting of bubbles in this market and consequently brought their economies into even deeper crises. Data: Quarterly price movements were analyzed in the real estate market in six countries: Italy, Spain, the United Kingdom, Serbia, Croatia and Slovenia in the period Q1 1980 - Q4 2019 for Italy, Spain and the United Kingdom; Q1 2002 - Q4 2019 for Serbia and Croatia and Q1 2007 - Q4 2019 for Slovenia. Tools: Empirical analysis has been performed by utilizing generalized sub-augmented Dickey-Fuller (GSADF) test of unit roots for the detection and data stamping of bubbles in the real estate market in time series at hand. Findings: In conclusion, grand European shutdown and COVID pandemic apparently did not prick multiplicity of previously formed real estate bubbles, at least not for the time being. Moreover, in several developing countries with stunted financial markets, the virus may have somewhat paradoxically solidified real estate prices and even sustained a build-up of rational real estate bubbles. Contribution: This paper expands previous research on real estate bubbles and provides new insights into the initial consequences of the COVID-19 pandemic.

Author Biographies

Marko Malović, Educons University, Novi Sad, Serbia

Prof. Marko Malović, PhD, is a Full Professor and Dean of the Faculty of Business Economics at Educons University, Novi Sad, Serbia. His areas of research and academic interest are International Finance, Open Economy Macro, Economics of European Integration and Global Banking. Marko Malovic is a Member of Euromoney’s Expert Panel of Economists on Country Risk and Sovereign Debt Repayment Capacity.

Miloš Roganović, Faculty of Business, Economics and Entrepreneurship, Belgrade, Serbia

Miloš Roganović is a Teaching Assistant at the Faculty of Business Economics and Entrepreneurship, Belgrade, Serbia and a PhD candidate at the Faculty of Business Economics, Educons University, Novi Sad, Serbia. His areas of research are International Finance, Financial Crises, Monetary Policy. He was a participant in the international project New Business Tendencies funded by the Faculty of Business Economics and Entrepreneurship, Belgrade, Serbia.

Mustafa Özer, Anadolu University, Eskişehir, Turkey

Prof. Mustafa Özer, PhD, is an economist who lectures at the Anadolu University, Eskişehir, Turkey in the capacity of Full Professor. His areas of research are Applied Econometrics, Financial Crises, Business Cycles, as well as Civil Society. He has been the director of research project of ‘The Role of Civil Society in Turkey’ sponsored by Johns Hopkins University of the USA and the Anadolu University of Turkey. Further, Mustafa Özer is a member of the editorial board of the Journal of Risk Management, and various journals in Turkey. Mustafa Özer is also a member of the scientific committee of MIBES and EconAnadolu.