Real Estate

  • 详情 China’s Shadow Banking: 2020-2022 ──In the Long Shadow of Strengthened Regulation
    This paper researches into development of China’s shadow banking during 2020-2022, a special period marked by COVID-19 and strengthened global regulation on Non-Bank Financial Intermediation (NBFI). Research focus includes balance sheet evolvement, growth dynamics, and relation with macro-finance. Its business model surprisingly resembles western peers. They both fund underserved sectors and have similar exposure to balance sheet mismatch. Massive holding of bond investment (36.6% of total asset) is funded by uninsured interbank fund and wealth management product, which makes it more closely related with banks’ balance sheet and risk contagion from NBFI to traditional commercial banks more easily. This paper then re-summarizes growth dynamics of China’s shadow banking in a “Pull-Push” framework, and proposes concept of reintermediation in respective to disintermediation. Consecutive regulation on NBFI and real estate sector kept dragging on growth of shadow banking, and rendered it in liquidity surplus, which is invested into interbank market. This paper also provides empirical evidence on relation of China’s shadow banking with macro-finance, and notes several empirical breakdowns of pre- COVID relations among economic and financial indicators. Most important breakdown is the non-functionality of monetary policy transmission channel. Besides, it continued to twist de facto financial regulatory indicators, however with fading impact.
  • 详情 Down Payment Requirements and House Prices: Quasi-Experiment Evidence from Shanghai
    Using the regression discontinuity design, a quasi-experiment approach, this paper establishes a causal relationship between the down payment requirement and house prices by exploiting a unique institutional background in Shanghai. In the unique setting, the required minimal down payment ratio jumps at the Inner Ring, a circular elevated highway, from 50% to 70% for a large group of buyers. With transaction level data from the largest real estate broker in Shanghai, we find that a lower required down payment ratio increases the apartment price by 138.8 thousand RMB, around 3.71% of the average transaction price.
  • 详情 Government Debt Capitalization in Chinese Real Estate Market: A New Perspective of Land Channel
    This study contributes to the understanding of the relationship between Chinese local government debt and house prices by proposing the land channel as a novel explanatory framework. We construct a three-sector equilibrium model and demonstrate that local government debt positively affects house prices through both direct and indirect effects, with the indirect effect operating through the land market. However, the land use efficiency mitigates the positive effect of government debt on land and house prices within indirect effect. These propositions are empirically confirmed using a panel dataset of 260 cities in China from 2011 to 2019.
  • 详情 Why China's Housing Policies Have Failed
    This paper reviews the current housing crisis in China and explores the roles of supply-demand imbalances and local governments in the real estate sector. To prevent the housing downturn from further dragging down economic growth, Beijing suspended the financing restrictions on developers imposed in August 2020. These restrictions, known as the “three red lines” that limited new borrowing by developers, led Chinese property developers to default on a record number of debt obligations and triggered the most serious housing slump China has seen since 1998. The property sector saw its value added decline by more than 5 percent in 2022, even as the overall economy grew at 3 percent. But the current dynamics in the housing market reflect a repeated pattern: Loosening financing restrictions on developers and using housing as a macroeconomic stabilization tool risks reinforcing the boom-bust housing cycle. China’s real estate sector is a systemic problem. Without serious reforms to address concerns such as supply-demand imbalances and local governments’ deep connections with real estate, housing slumps like the one in 2022 may recur.
  • 详情 The Implementation of Central Bank Policy in China: The Roles of Commercial Bank Ownership and CEO Faction Membership
    We examine the roles of bank ownership and CEO political faction membership in facilitating or hindering the implementation of central bank policy in China. Specifically, we examine the response of China’s commercial banks to People’s Bank of China (PBC) guidelines intended to decrease mortgage lending and to slow down the rise in residential property prices. We find that both bank ownership and faction membership matter. Central government-owned banks whose CEOs are members of the specialist finance faction within the Chinese Communist Party (CCP) respond most strongly to PBC guidance, whereas provincial or city government-owned banks whose CEOs are members of a generalist faction respond least strongly. The implementation of PBC policy has real effects: in those cities where central government-owned banks with specialist CEOs constitute a larger percentage of total bank branches, house prices grew more slowly, as did the number of residential real estate transactions and the number of new listings. Where in contrast provincial and city government-owned banks with generalist CEOs dominate, the number of transactions grew faster; the rate of house price appreciation and the number of listings were however unaffected. We conclude that China’s different levels of government and the CCP’s different factions enjoy some discretion in responding to PBC guidance and that they exploit the discretion they are afforded to vary the strength of their response.
  • 详情 A Tale of Tier 3 Cities
    This paper provides new estimates of the housing stock, construction rates and price developments by city tier in China in order to understand where excess supply might be concentrated, and the implications of any significant contraction. We also update estimates of the size of China’s rapidly evolving real estate sector through 2021, allowing one to look at the initial impact of COVID-19, as well as extending the analysis to incorporate urban-expansion related infrastructure construction. We argue that China overall faces imbalances between supply and demand for housing stock, but the problem is significantly deeper in the generally smaller and lower income tier 3 cities, which nevertheless account for more than 60% of both China’s GDP and its housing stock.
  • 详情 Measuring Real Estate Policy Uncertainty in China
    Referring to the newspaper textual analysis method by Baker et al. (2016), this study constructs a monthly Chinese Real Estate Policy Uncertainty (REPU) index from 2001 to 2018. The index increases significantly near the promulgation of major policies. We also conduct evaluation of the index with the vector autoregression (VAR) model, which reveals that the rise of REPU indicates the decline in the growth rate of commodity housing development investment, sales area, and real estate industry added value. The REPU index is helpful to expand the understanding of policy uncertainty, and the accurate measurement of REPU is the basis for further research of its impact on China's real estate market.
  • 详情 The Health Consequence of Rising Housing Prices in China
    This paper examines the health consequence of rising housing prices by exploiting spatial and temporal variation in housing price appreciation linked to individual-level health data in China from 2000 to 2011. Using an instrumental variable approach, we find robust evidence that increases in housing prices significantly raise the probability of residents having chronic diseases. This negative health impact is more pronounced among individuals from lowincome families and rural to urban migrants. Exploring various possible channels, we find that marriage culture and marriage market competition exacerbates the negative health effects, particularly for males and parents with young adult sons. Our results also reveal that housing price appreciation induces negative health consequences through increased work intensity, higher mental stress, and changes in lifestyle. This paper underlines the unintended health consequences of the real estate market prosperity.
  • 详情 Capital Scarcity and Industrial Decline: Evidence from 172 Real Estate Booms in China
    In geographically segmented credit markets, local real estate booms can divert capital away from manufacturing firms, create capital scarcity, increase local real interest rates, lower real wages, and cause underinvestment and relative decline in the industrial sector. Using exogenous variation in the administrative land supply across 172 Chinese cities, we show that the predicted variation in real estate prices does indeed cause substantially higher capital costs for manufacturing firms, reduce their bank lending, lower their capital intensity and labor productivity, weaken firms' financial performance, and reduce their TFP growth by economically significant magnitudes. This evidence highlights macroeconomic stability concerns associated with real estate booms.
  • 详情 Should We Fear an Adverse Collateral Effect on Investment in China?
    Working with unique data on land values in 35 major Chinese markets and a panel of firms outside the real estate industry, we estimate standard investment equations that yield no evidence of a collateral channel effect. This is markedly different from previous work on the United States and Japan which finds economically large impacts. One reason for this appears to be that some of the most dominant firms in China are state-owned enterprises (SOEs) which are unconstrained in the sense that they do not need to rely on rising underlying property collateral values to obtain all the financing necessary to carry out their desired investment programs. However, we also find no collateral channel effect for non-SOEs when we perform our analysis on disaggregated sets of firms. Norms and regulation in the Chinese capital markets and banking sector can account for why there is no collateral channel effect operating among these firms. We caution that our results do not mean that there will be no negative fallout from a potential real estate bust on the Chinese economy. There are good reasons to believe there would be, just not through a collateral channel effect.