JDE (Journal of Developing Economies) Vol. 2 No.

1 (2017): 1-13

JDE (Journal of Developing Economies)

https://e-journal.unair.ac.id/JDE/index

PROPERTY PRICE BUBBLE: REGIONAL ANALYSIS IN INDONESIA

Indra Kurniawan*1
Rudi Purwono2

1,2
Faculty of Economics and Business, Universitas Airlangga, Indonesia

ABSTRACT ARTICLE INFO

The aim of this study is to look at the influence of fundamental factors of Received: March 27th, 2017
demand and supply side of the property prices in five major Cities in Indo- Revised: April 30th, 2017
nesia using data panel regression methods. In addition, this study analyzes Accepted: May 7th, 2017
the regional property and the price bubble in Indonesia using the Hodrick Online: June 20th, 2017
Prescott filter analysis. The results of the panel data regression method
Showed that the demand-side fundamentals such as economic growth and *Correspondence:
inflation have a positive effect on property prices as well as interest rate, Indra Kurniawan
while the loan to value(LTV) Negatively Affect the price of the property. On E-mail:
the other hand, the fundamental factors of supply-side variable, that is de- [email protected]
veloper’s price expectations impact positively the price of the property. HP
filter analysis identifying the bubble in every city that lasted for two periods
during the study.
Keywords: Property Price, Property Price Bubble, Fundamental Factors, Hp
Filter
JEL : D23, R21, R31
To cite this document: Kurniawan, I., & Purwono, R., (2017). Property Price Bubble: Regional Analysis in Indonesia. JDE (Journal of Developing
Economies), 2(1), 1-13.

Introduction
The crisis in the US (Lehman Brothers went bankrupt and AIG collapse in September
2008), which later spread to Europe showed that the instability in the financial sector have a
serious impact on the real sector. The financial crisis driven by credit-driven bubbles turn into
a global crisis and has led to a drastic fall in economic activity. An increase in the global price
of housing significantly beginning in 1995-2011. For example, house prices in Australia, Swe-
den, Spain, Ireland and the UK before going bad debts in the United States has increased two
times greater than in the early 1990s (Karl et al., 2001). Housing growth increased by more
than 70% from the period of January 2001 and its peak in May 2006, it is this which brings to
the emergence of the financial crisis.
The increasing price of housing led to the emergence of the volatility of the price of
housing is the cause of bad credit and rising house prices (Miles & Pillonca, 2008). Many re-
searchers believe that a significant house price growth could potentially lead to the emergence
of bubble. When the bubble burst, this will jeopardize the economic stability of a country. For
example, Glindro, et al. (2011) found that the bubble in asset prices is one of the systemic risk
of a banking crisis that arise from the increased credit for property growth.
Minsky & Kaufman (2008) describes how the asset price bubbles and erupted occur
through five stages such as displacement, boom, euphoria, profit taking and panic. When
JDE (Journal of Developing Economies) p-ISSN: 2541-1012; e-ISSN: 2528-2018
DOI: http://dx.doi.org/10.20473/jde.v2i1.5707
Open access under a Creative Commons Attribution 4.0 International

(CC-BY)
Kurniawan, I.,
Property Price Bubble: Regional Analysis in Indonesia
& Purwono, R.

there is a bubble in the property market, the increase in housing prices raised expectations on
house prices in the long term. This is how the bubble in housing prices occurred.
Research on the property price bubble has previously been carried out by several re-
searchers. Hlaváček & Komárek (2011) through research on the analysis of regional housing
price bubbles in the Czech Republic and the factors that influence it found that there was
overvalued (bubble) property price in 2003/2004 and 2007/2008 caused by fundamental fac-
tors such as economic growth, inflation and rate flower.
In addition to the scope of a national scale, Bank Indonesia also conducted surveil-
lance on a regional scale. Every region in Indonesia, is different in the level of economic de-
velopment, so the growth in property prices is also different. There are five big city where
residential property price growth exceeded the growth in property prices in 9 other cities
surveyed (Real Sector Statistics Division, 2014). Namely, Medan, Jakarta, Surabaya, Manado
and Makassar. Based on the pattern of annual growth, it can be indicated that five major cities
in property prices tend to be a trigger rise in property prices in nine other cities, namely Den-
pasar, Bandung, Bandar Lampung, Padang, Banjarmasin, Pontianak, Semarang, Palembang
and Yogyakarta.
The increase in housing loans boosted the expectations of increase in property prices
that could steer the economy towards the bubble. Bank Indonesia shall supervise the residen-
tial property price movements to be aware of the property price bubble, so it can be anticipat-
ed as early as possible. The development of residential property prices continued to rise and
increased significantly since 2012.
To prevent the credit risk due to the rising of housing price that potentially leads to the
bubble condition, Bank Indonesia issued a policy instrument that is the loan to value (LTV).
Loan to value policy is the maximum provision of financing can be given against the property
value at the time of credit or financing based on the price of the final assessment. Control of
the particular credit like property is expected to reduce the growth of property prices and
prevent the price bubble.
The aim of the study is the first, as we saw earlier that property price bubble is influ-
ence very significantly on the economy as a whole. Therefore, this study will look at whether
factors such fundamental determinant of the price of the property in terms of supply and
demand as economic growth, inflation, interest rates, price expectations of developers and
macro-prudential policies (loan to value) affect the property prices in five major cities in In-
donesia, Second, analyze the regional property prices in Indonesia if there is property price
bubble that occurred.
Literature Review
Property Market Theory
The theory of the property market by Miles & Pillonca (2008) have two approaches.
That is property as standard goods and property as financial assets. Housing as an investment
has the advantage of it’s durability, and the presence of it’s real form.
Definition of the property according to Sullivan (2012 p.367) is a consumer goods
(housing) which has three distinctive characteristics compare to other goods. First, the hous-
ing that are heterogeneous means differ in size, location, function/ usability, and style. Sec-
ond, the house is naturally durable and can depreciate quickly or slowly in accordance with
the maintenance by the owner. Third, reduce the cost of owner’s displacement, in the pres-
ence of home one’s will reduces the costs for activities such as bathing, sleeping, eating and
so on in different place.

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Property Price Bubble

According to Bank Indonesia (2012), the property price bubble is a situation where
the increase of property prices happen to be very drastically far beyond it’s normal condition.
The reasonableness of the price increase apply gradually with increasing levels of inflation or
income. If the rapid price movement trend continues, there will be the outbreak of the con-
ditions that make the property bubble property prices fall, followed by the overall economic
collapse that will cause problems in the form of national economic recession.
Up to now there is no clear definition upon bubble condition that being accepted in-
ternationally. Some researchers revealed a general definition of a bubble. Glindro, et al (2011)
stated that the fundamental value of housing is determined by the condition of long- term
economic conditions. If there are deviations in the value of long-term fundamentals that in-
dicate the occurrence of a bubble. The same opinion expressed by Chen, et al (2013), which
captures the phenomenon of bubble by comparing the actual price and the long-term trend
of the estimation. If the actual price is above its long-term trend of more than three consecu-
tive terms indicate the occurrence of a bubble. Landergren (2013) defines three definitions for
the property price bubble, among others: (1) Housing prices are above their long-term trend;
(2) House prices cannot be explained by fundamental factors; and (3) Estimated indicative
model predicts house prices will fall.
Location Theory
In forming property prices, one of the most important determinants of the price of
the property is land. According to O’Flaherty (2005, p. 116) departing from something that is
‘priceless’ land could become the most expensive commodity. So that the land factors could
cause housing price bubble.
The element that causing land values increased dramatically is the location factor. In-
tended location factor is how far the location of the land to the Central Business District (CBD)
or can also be called magnet site, where the CBD is a place where the center of economic
activity mainly takes place as well as the seat of government is located. On this basis, the
value of land will be higher when the distance of the land is closer to the center of the CBD.
Conversely when the distance getting further the values began to decline.
In the housing industry a major factor in the provision of property by developers who
have a high cost factor is land. The closer the location of which will be built by the developer
to the CBD, it will be more expensive the input costs to be paid, so that the consequences of
the high cost of inputs in the provision of property led to soaring property prices and cause
bubble.
In addition, other things that can cause land prices to rise is the accessibility of the
land be reached from the CBD/magnet site by private or mass transportation. In terms of
accessibility, ie the availability of transportation access such as roads, bridges and others as
well as the emergence of mass transportation such as buses and the monorail that will
certainly reduce the cost of resident to reach the city center. This is in turn will equalize the
price of land from the nearest to the farthest regions of the CBD.
Rational Asset Price Bubble Theory
Santos and Woodford (1997) brought the rational theory of asset price bubble where
indicate that the bubble occurs when asset prices deviate over the fundamental price. Asset
prices are not in accordance with fundamental caused by supply and demand factors. the
offers of assets is limited, while the demand continues to rise. This condition make the price
of assets diverge from its fundamental price. Therefore, it must be recognized by the investor
that the risk of the property market is high, eventhough the return rate is high as well. As stat-
ed by Simans (1989) that the rate of return and the risk of an asset always related positively.

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Kurniawan, I.,
Property Price Bubble: Regional Analysis in Indonesia
& Purwono, R.

Data and Research Methods

Model
The model used in this study refers to earlier research by Wong, et al. (2011), Camer-
on, et al. (2006), Hlaváček & Komárek, (2011) and Chen, et al. (2013). The following econo-
metric models that have been modified to suit the purpose of the study:

IHPRit = b 0 + b1 + b2 PDRBit LRIT INFit + b3 + b 4 b5 DLTVit + Exit + f it (1)

Where
IHPRit : Residential Property Price Index of 5 major cities in Indonesia
PDRBit : Economic Growth of 5 major cities in Indonesia in quarter t
LRIT : Interest rates of 5 major cities in Indonesia in quarter t
INFit : Inflation of 5 major cities in Indonesia in quarter t
DLTVit : Dummy policy loan to value. 1 when the policy LTV being implemented,
otherwise 0.
Exit : Developer’s Price expectation of 5 major cities in Indonesia
f it : error term
Method
The approach used in this research is quantitative approach, by which the research
conduct by looking at the effect of economic growth, inflation, interest rates, a dummy for a
policy loan to value and price expectations of developers to property prices in five major
cities in Indonesia during the period of the first quarter of 2006 until the fourth quarter of
2014, carried out by the method of panel data regression and further analyze the property
price bubble utilizing the HP filter.
Data used in this research is secondary data. Data were used from 5 major cities (Med-
an, Jakarta, Surabaya, Manado and Makassar) in Indonesia. Secondary data used in this re-
search is time series data in the form of quarterly basis, starting from the first quarter of
2006 until the fourth quarter of 2014. The data sources used include Housing Price Index
Residential (IHPR), loan interest rate and the data of price expectations of the developers of
Bank Indonesia, the data Gross Domestic Product (GDP) as well as the Consumer Price Index
is collected from the Central Statistics Agency (BPS).
Panel Data Regression Method
The analysis technique used in this study to see the effect of independent variables on
the dependent variable is the panel data regression methods. Data panel is a combination of
time series and cross section. Data panel has dimensions of space and time. There are several
benefits when doing regression using panel data (Gujarati & Porter, 2009, p. 237).
There are several methods that can be used to estimate the panel data regression
model that is Pooled Least Square (PLS), Fixed Effects Model (FEM) and the Random Effect
Model (REM). To select the most appropriate estimation technique used between Pooled
Least Square, Fixed Effect and random effects model, three kind of test can be utilized, name-
ly the Chow test, Hausman test and Lagrange Multiplier test. Chow test is used to choose
between Pooled Least Square and fixed effect models. Lagrange Multiplier test is used to de-
termine whether to select Pooled Least Square or random effect model. Hausman test, finally,
is used to choose between the fixed effect model and random effect model. The following is
the stages of testing:

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 JDE (Journal of Developing Economies) Vol. 2 No. 1 (2017): 1-13

1. Selection of the estimation model

a. Chow test
b. Test Lagrangian Multiplier
c. Hausman test
2. Classical Assumption Testing
a. test of Multicollinearity
b. test of Heteroskidastity
c. autocorrelation test
3. Statistical test of
a. t-statistic
b. The F-statistic
Hodrick Prescott filter (HP filter) Method
The Methods Hodrick Prescott Filter (HP Filter) was first introduced by Hodrick Prescott in
1997. This method is used to perform the decomposition of long-term and cyclical trends in
the univariate models (Enders, 2008). This method is technically a double-sided linear filter
(backward-forward) used in calculating the smoothed-trend series data (Y) by means min-
imizing loss function (L), the variance y around value, with a certain penalty. Equation on
Hodrick Prescott Filter as follows:

Yt = xTt + cTt (2)

W here the observed time series data is smoothed-trend series and the data cycle (cycle).

Min L = 1T / (yt Tt = 1 - xt) 2 + mT / "]xt + 1 - xtg - (xt - xt - 1) , 2T - 1t = 2 (3)

Penalty parameter 𝜆 controls the stimulus of series, If 𝜆 reach the infinite value the trendvalue
is constant, resulting in linear trend patterns (Enders, 2008). Hodrick Prescott recommend =
100 for annual data (annual data), = 1600 for quarterly data and = 14400 for monthly data
(monthly data). HP-filter method has been widely used by researchers to look atthe long-term
trend of the dependent variable as well as a threshold value.
The threshold value determined by the HP filter method consists of the upper threshold and
lower threshold. The boom period is determined when the actual data are above the upper
threshold that is greater than the standard deviation. While the burst period is consider to
occur when the actual data are below the lower threshold that is smaller than the standard
deviation (Borgy et al., 2009).
Finding and Discussion
Fundamentals Property Price Determinants in 5 Cities of Indonesia
Based on the description above in the fundamental factors determinants of property
prices, there are variables that influence the price trough the process of demand and supply,
Hlaváček & Komárek (2011) and Chen, et al. (2013) explains that property prices are formed
under theinfluence of factors of demand (demand) and supply factors (supply). In this study
the demand side variables included in the model are economic growth, inflation, interest
ratesand loan to value. Besides, the supply side using the variable of price expectations of the
developers. By using a panel data method results can be explained as follows.
One variable that is affecting property prices is economic growth. Analysis using panel
data methods get results that economic growth significantly affect the property prices. These
results are consistent with the finding of Igan and Loungani (2012), Cameron, et al (2006) and
Hlaváček & Komárek (2011) where the research indicate that economic growth significantly

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Kurniawan, I.,
Property Price Bubble: Regional Analysis in Indonesia
& Purwono, R.

affect housing prices. While the regression results of this study show that economic growth
has positive influence on property prices. These results are supported by previous research as
well as the hypothesis that economic growth is positively related to the price of the property.
Next Variables of the demand factors that affect the property price index is inflation.
The estimation results of this research explained that inflation significantly influence property
prices. But the inflation variable coefficients show positive sign indicating that the increase of
inflation followed by increase in property prices. These results are not in line with research
conducted by Cameron, et al (2006) in his study of British regional property prices by using
inflation as a variable that represents the demand factors on property prices, found that infla-
tion is significantly and negatively affect the property prices due to the existence of inflation,
demand for housing fell so prices will go down. These results reject the initial hypothesis
which says that inflation will demonstrate negative influence.
This is becauseeven if the price of other goods increased, people assume that house
prices would keep continue to increase over time. In addition, along with the high economic
growth in major cities in Indonesia reflects the condition that the public welfare are getting
higher. This led to the shifting background of housing demand by the public. At first the public
assumes that housing is a standard goods means that people consider housing as a com-
modity consumption, however with the increasing in incomes and social welfare the housing
consumption patterns will also change, where people consider housing as a financial asset
or an investment. This is happen because the expectations by the public that the price of the
property in the long term will continue to rise.
This is supported by the theory of the property market by Miles (1996) that the prop-
erty has two approaches that is as standard goods and financial assets. Housing as an invest-
ment has the advantage of durability by nature. This result is supported by research from
Chen, et al (2013). According to Chen, et al (2013), his research on the analysis of property
price bubble regional analysis in China found that the inflation variable used in the analysis
has a positive effect on the price of the property resulting from population growth is very high
in China cause a reduction in the soil to develop new housing so that the property become
a major consumer goods and inflation does not lead to reduced public demand for housing.
Others demand factors used in this study is the interest rate. The interest rate used in
this research is the lending rates. Regression results show that the interest rate significantly
influence property prices. While the interest rate relationships with property prices is nega-
tive. Thus, it can be interpreted that the higher the interest rate, the lower the level of proper-
ty prices. Vice versa, if the low interest rates will increase the demand for property prices and
caused property prices to rise. These results are supported by the research of Cameron, et al
(2006), The estimation results with LTV as a dummy variable shown significant results where
LTV policy affect property prices significantly. Bank Indonesia issued a specialmacro-pruden-
tial policies to reduce the risk to the property bubble boom as the financial crisis has occurred
in the United States in 2008 as a result of the subprime mortgage. Based on the results of the
regression coefficient, LTV demonstrate significant impact on the decline in property prices.
This is supported by previous studies of Wong, et al (2011) and Chen, et al (2013) that their
loan policies to value causing a decrease in one’s ability to meet the initial down payment
purchase residential housing so demand will decline and lower the price of the property itself.
Meanwhile, another factor that affects the price of the property that is a factor of the
supply side (Supply) and variable supply factors used in this study is the variable price expec-
tations of the developers. From the results of the regression method used panel data showed
that the variables of price expectations of developers significantly influence the price of the
property and has a positive relationship. The variable “developers’ price expectations”is an
interpretation of the expectations of the developer to be an increase in input costs in the
supply of properties such as building materials (construction cost), through the development
of input costs (construction cost) that the developers would expect property prices in the

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coming period.
This result is supported by research from Chen, et al (2013) and Gelain and Lansing
(2014), which uses a variable construction cost as the interpretation of the variable factors
of supply. Their findings is that construction costs (construction cost) is positively associated
with housing prices due to higher input prices in making one home it will increase the price
of the house itself.
Analysis of Property Price Bubble in 5 Cities of Indonesia
There are several kinds of methods in analyzing the property price bubble conducted
by several researchers in various countries. However, Chen, et al (2013) said in determining
the definite method in this research that no one size fits all. Based on the research of Hlaváček
& Komárek (2011), Chen, et al (2013) and Borgy, et al (2009) The method used in an intensive
search to identify the property price bubble in each city is a method of HP filter that has been
used by some previous researchers to analyze the period in which the bubble is occur.
This study gives an evident that the property price bubble occurred in 5 major cities
(Medan, Surabaya, Jakarta, Manado and Makassar) in Indonesia. The occurrence of bubble
occurs in each of the different periods in Table 5 Bubble that occurred in that period occurred
because the actual value of residential property price index is above the trend of long-term,
this is in accordance with the theory of rational asset price bubble by Santos and Woodford
(1997) that bubbles occur in the Saar asset prices deviate above trend long term.
Then Chen, et al (2013) sharpen the analysis by saying that the period of bubble occurs
when the actual price of the property price is above its long-term trend for more than three
consecutive terms.
Table 1: Property Price Bubble in Big Cities in Indonesia
Property Price Bubble
City
period I period II
Medan Q1 2008 - Q2 2009 Q1 2013- Q4 2014
Jakarta Q3 2006 - Q2 2009 Q1 2013- Q4 2014
Surabaya Q3 2006 - Q2 2009 Q3 2013- Q4 2014
Manado Q1 2008 – Q2 2009 Q4 2013- Q4 2014
Makassar Q1 2008 – Q2 2009 Q4 2013-Q4 2014

Table 1 the periods of the property price bubble in each of the cities in the study. To
analyze the property price bubble researchers using the HP filter method. This method has
been widely used by researchers to analyze the occurrence of a bubble. As research conduct-
ed by Hlaváček & Komárek (2011), Chen et al (2013) and Afanasieff, et al (2015). In Hlaváček
research and Komárek (2011) on regional analysis of the bubble in housing prices and the
factors that influence in the Czech Republic. By using the analytical approach Hodrick- Prescott
(HP filter) and found that overvalued (bubble) in property prices in 2002/2003 as well as in
most of the year 2007/2008.
This study uses the HP filter is used to determine the bubble period of long-term
trends as well as to determine the outbreak of the bubble (boom property). The threshold
value is determined using the HP filter with the upper threshold and lower threshold. This is
supported by research from Borgy, et al (2009) determined that the boom period when the
actual value is above the upper threshold is determined while the bust period when the actu-
al value is below the lower threshold. The threshold value is determined from (+δ) standard
deviation of the long-term trend for the upper threshold while the lower threshold value is
determined by (-δ) standard deviation of the long-term trend.

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Kurniawan, I.,
Property Price Bubble: Regional Analysis in Indonesia
& Purwono, R.

In determining the bubble period, as the theory of rational asset price bubble that
bubbles occur in the Saar asset prices deviate above the long-term trend (Santos & Woodford,
1997). Then Chen, et al (2013) sharpen the analysis by saying that the period of bubble occurs
when the actual price of the property price is above its long-term trend for three consecutive
periods
The results of the analysis of property price bubble in this study, the bubble period
arefound in each city occurred as many as two periods. The first period started in the second
quarter of 2006 (Jakarta and Surabaya) and the first quarter of 2008 (Medan, Manado and
Makassar) until the second quarter of 2009. In general, bubble that occurred in the first period
is caused by the rising cost of building materials. For the case of Jakarta and Surabaya who first
identified this bubble because in addition to the rising prices of building materials also be-
cause of the high cost of licensing to build the house. Meanwhile, after entering the period of
the first quarter of 2008 the increase in property prices is attributed not only to the continued
increase in building materials but also caused by increased wages.
The rising price of property until the bubble in the first period is mostly due to the
rising cost of input factors in the supply of property. This result is supported by research from
Chen et al (2013) and Gelain and Lansing (2014), which uses a variable construction cost as a
factor variable interpretations and findings that deals in construction costs (construction cost)
positively associated with price home due to the higher prices of inputs in making a home will
increase the price of the house itself.
The next bubble period occurred in the span of the first quarter 2013 to the fourth
quarter of 2014. Conditions that driven the occurrence of bubble in this period is due to the
impact of the world economic slowdown. Due to the influence of the financial crisis in 2008
which transmitted in many developed countries is therefore in that period many countries are
still trying to recover its economy, it is also shows an impact on Indonesia. The economicslow-
down is not only an impact on Indonesia in general, but also have an impact to the regional
scale in Indonesia.
The economic slowdown condition people’s purchasing power or demand for property
decreases. But the economic slowdown does not lower the residential property price index
that occurred in each of the cities even property prices continue to rise. This is because due
to expectations of people who argue that property prices will always go up in the long term
so that people who have excess funds to invest in the form of property. This helped create a
demand for property continues to exist as well as the availability of the property supply is not
faster growth will lead to increased demand for residential property price index continues to
increase (Bank Indonesia, 2014).
On the other hand, Indonesia is the fourth most populous country in the world and has
a pretty good economic growth in some other developing countries make the developers con-
tinue to invest to increase the supply of housing. Continued increase in supply of residential
property in the midst of an economic slowdown that occurs coupled with a financing facility
used to buy housing mostly using a mortgage will increase the risk of default and potentially
make the bursting of the bubble which will affect the worsening economy.
However, Bank Indonesia as the agency that runs the monetary instrument has antici-
pated the impending bubble. In 2012, Bank Indonesia issued a macro-prudential policy that is
loan to value through SE No. 14/10 / DPNP and replace with SE No. 15/40 / DKMP for housing
credit control. From the results of econometric analysis of the regression results indicate that
LTV dummy variables significantly affect the price of the property, but the results of different
coefficients with the hypothesis that the relationship dummy LTV negative effect on property
prices.
According to the Bank Indonesia in the survey stated that the price of residential prop-

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 JDE (Journal of Developing Economies) Vol. 2 No. 1 (2017): 1-13

erty after the policy is issued LTV policy effectively reducing defaults due to the credit cycle
and increased prices caused more expectation and speculation the communitywill be the
price of the property. According to Lind (2009) about the kinds of the bubble, a bubble that
occurred in 5 major cities in Indonesia is Irrational Bubble Expectation is a state with mar-
ket participants becoming too optimistic and think that property prices will continue to rise
rapidly in the long term. Growth is expected to be much higher than the historical average.
By Therefore, market participants feel that the high prices are formed fairly rational,and still
decided to buy although not supported by higher revenues.

Conclusion
1. The independent variables (economic growth, inflation, interest rates, price expectations
of developers and dummy LTV) individually and jointly affect thedependent variable.
2. Based on analysis of the property price bubble using the Hodrick-Prescott Filter (HP Fil-
ter) on property prices in five major cities in Indonesia. The study states that in the study
period, price bubble occurred throughout the period. In general the bubble period in ev-
ery major city occurred as many as two periods. The first period of rising property prices
due to increasing prices of building materials (supply factor) in the provision of property
while in the second period due to public expectations that property prices will be higher
in the long term to make people who have excess funds to invest in the form of property.
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Appendix
Appendix 1: Estimation Results Poole Least Square (PLS)

source SS df MS Number of obs = 180

Model 163646.4 5 32729.28 F(5,174) = 227.09
Residual 25077.81 179 144.1253 Prob > F = 0.0000
Total 188724.2 184 32873.4 R - squared = 0.86.33
Adj. R-squared = 0.86.33
Root MSE = 12.005

ihpr Coef Std.Err T P >|t| {95% Conf. Interval

pdrb 0.000778 8.89E-06 8.74 0 6.02E-05 0.0000953
ihk 1.65182 0.108589 15.21 0 1.437535 1.866141
Ir -5.64472 0.894963 -6.31 0 -7.4111 -3.878342
dItv -14.3788 3.51449 -4.09 0 -21.3153 -7.442305
eks 0.840099 0.177779 4.73 0 0.489219 1.190979
_cons -105.508 22.17802 -4.76 0 -149.28 -61.73528

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 JDE (Journal of Developing Economies) Vol. 2 No. 1 (2017): 1-13

Appendix 2: Estimation Results Random Effect Model (REM)

Random-effects GLS regession Number of obs = 180
Group variable: city number of groups =5
Obs per group: min = 36
R-sq within = 0.8863 avg = 36.0
between = 0.7713 Max = 36
overall = 0.8671 wald vchi2(5) = 1135.45
corr(u_i,X) = 0 (assumed) Prov> chi2 = 0.0000

ihpr Coef Std.Err t P >|t| {95% Conf. Interval

pdrb 0.0000777 8.89E-06 8.74 0 6.02E-05 0.0000953
ihk 1.65182 0.108589 15.21 0 1.437535 1.866141
Ir -5.64472 . 0.894963 -6.31 0 -7.4111 -3.878342
dItv -14.37882 3 3.51449 -4.09 0 -21.3153 -7.442305
eks 0.840099 0.177779 4.73 0 0.489219 1.190979
_cons -105.5079 22.17802 -4.76 0 -149.28 -61.73528
sigma_u 1. 1735289
sigma_e 5.5929275
rho 0.08780843 (fraction of varience due to u_i)

Appendix 3: Results Estimatees of Fixed Effect Model (FEM)

Fixed-effects (within) regression Number of obs = 180

Group variable: city number of groups =5
Obs per| group: min = 36
R-sq within = 0.8955 avg = 36.0
between = 0.6563 max = 36
overall = 0.8498 wald vchi2(5) = 291.36
Prov> chi2 = 0.0000
corr(u_i,X) = 0 (assumed)

ihpr Coef Std.Err t P >|t| {95% Conf. Interval

pdrb 0.0000592 .000047 8.74 0 6.02E-05 9.53E-05
ihk 1.393568 .1022063 15.21 0 1.437535 1.866141
Ir -2.007285 .9417447 -6.31 0 -7.4111 -3.87834
dItv -15.1313 2.932197 -4.09 0 -21.3153 -7.44231
eks 0.8594394 .1505824 4.73 0 0.489219 1.190979
_cons -26.74894 22.32726 -4.76 0 -149.28 -61.7353
sigma_u 5.2402798
sigma_e 5.5929175
rho 0.467482 (fraction of variance due to u_i)
F test that all u_i=0 F(4,170) Prob > F = 0.0000

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Kurniawan, I.,
Property Price Bubble: Regional Analysis in Indonesia
& Purwono, R.

Appendix 4: Election Results Estimation Model Lagrange Multiplier Test)

ihpr (city,t) = Xb + u(city)+e(city,t)
Estimated results:
Var sd=sqrt(Var)
ihpr 150.4992 12.26781
e 31.28084 5.592928
u 3.011123 1.735259
Test : Var (u) = 0
chibar2(01) = 70.45
Prob > chibar2 = 0.0000

Appendix 5: Election Results Estimation Model (Hausman Test)

(b) (B) (b-B) sqrt(diag(V_b-V_B))
fe re Difference S.E.
pdrb 0.0000592 0.000777 -0.000185 0.0000461
ihk 1.392568 1.65182 -0.2582527 -
Ir -2.007285 -5.64472 -3.637435 0.2931292
dltv -15.1313 -14.3882 0.7524738 -
eks 0.8594394 0.84009 0.0193404 -
b = consistent under Ho and Ha; obtained from xtreg
B = inconsistent under Ha, efficient under Ho; obained from xtreg
Test: Ho: difference in coefficients not systematic
chi2(4) = (b-B)’[(V_b-V_B)^(-1)](b-B)
= 177.15
Prob>chi2 = 0.0000
(V_b-V_B is not positive definite)

Appendix 6: Test Results Multicollinearity

Variable VIF 1/VIF
Ihk 4.00 0.25007
dltv 3.09 0.323128
Ir 2.16 0.462578
Eks 1.36 0.733994
pdrb 1.04 0.960199
Mean VIF 2.33

Appendix 7: Test Results Heteroskeidastity

Modified wald test for groupwise heteroskedasticity in fixed effect regression model
H0: sigma(i)^2 = sigma^2 for all i
chi2 (5) = 184.19

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 JDE (Journal of Developing Economies) Vol. 2 No. 1 (2017): 1-13

Prob>chi2 = 0.0000

Appendix 8: Autocorelation Results

Wooldridge test for autocorrelation in panel data
H0 = no first order autocorrelation
F(1,4) = 450.484
Prob > F = 0.0000

Appendix 9: PCSE Method

Linear regression, correlated panels corrected standard errors (PCSEs)
Linear regression, correlated panels corrected standard errors (PCSEs)
Group variable : city Number of obs = 180
Time variable : date2 number of groups =5
Panels : correlation (balanced) Obs per| group: min = 36
Autocorrelation : no autocorrelation avg = 36.0
Estimated covariances = 15 max = 36
Estimated autocorrelations =0 R-squared = 0.8671
Estimated coefficients =6 wald vchi2(5) =785.38
Prov> chi2 = 0.0000
Panel-corrected
ihpr Coef Std.Err z P >|t| {95% Conf. Interval
pdrb 7.77E-05 5.81E-06 13.38 0 6.63E-05 8.91E-05
ihk 1.65182 0.138185 11.95 0 1.380983 1.922658
Ir -5.64472 1.069982 -5.28 0 -7.74185 -3.5476
dItv -14.3788 4.419854 -3.25 0 -23.0416 -5.71607
eks 0.840099 0.200626 4.19 0 0.446879 1.233319
_cons -105.508 27.02801 -3.9 0 -158.482 -52.5339

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