Chinese Housing Markets

Paper Session

Sunday, Jan. 8, 2017 3:15 PM – 5:15 PM

Sheraton Grand Chicago, Huron
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Jing Wu, Tsinghua University

The Price Premium for Green-Labelled Housing: Evidence From China

Jing Wu
,
Tsinghua University
Li Zhang
,
Tsinghua University
Hongyu Liu
,
Tsinghua University

Abstract

The Chinese central government introduced the Chinese Green Building Label in 2008, which makes China one of the few developing countries with an official rating system of buildings performance in sustainability. This paper investigates the existence and magnitude of the price premium associated with this official green label in the residential sector. Based on a unique data set of green labelled, newly-built housing projects and their non-labelled counterparts from around the country in 2013, an empirical analysis suggests that the labelled housing projects attract a price premium of 6.9 percent compared with their non-labelled counterparts. Further analysis suggests that this official green label is more effective as a reliable signal of buildings energy efficiency in the Chinese context compared with developers self-advertised greenness or other global certifications, such as LEED. These results provide preliminary evidence that with the use of this official rating system, the investment in buildings energy-efficiency could be potentially profitable for housing developers in China, and such profitability may herald a rapid development of the green housing market in urban China.

China's Political Cycle and China Buyers in Singapore Property Market

Daxuan Zhao
,
Renmin University of China
Leiju Qiu
,
National University of Singapore

Abstract

To secure wealth is a key motivation of allocating assets overseas. The political leadership transition occurs in China every five years. The shift of leadership brings huge uncertainty to China's society, especially wealthy people. With the private residential property transaction data in Singapore, this paper shows that the number of transactions by China mainland buyers increases by half during China's political transitions, comparing with that by Singapore local, Malaysia, US and Hong Kong buyers.

What Motivates the Developer to Sell Before Completion?

Ling Li
,
University of Hong Kong
Kwing Wing Chau
,
University of Hong Kong

Abstract

Presale or selling before completion is a very common phenomenon in the housing market. However, not all developers presell their units and that the proportion of units presold varies over time and across projects. This study examines the factors that affect developer’s decision to presell their units. Based on housing transaction records in more than one thousand projects in Hong Kong, we found that presale is used as a tool to hedge against future price fluctuation so as to reduce the risk (volatility) of the performance of the developer’s real estate development portfolio. However, the effectiveness of presale as a future hedging strategy varies with the size of the development portfolio held by the companies and the companies with a larger development portfolio have higher tendency to presell. When the flexibility of presale is constrained, its effectiveness also declined and thus less incentive for the developer to presell. Another reason for the developer to presell is to exploit its information advantage over the potential buyers that cannot inspect the completed property. Contrary to industry wisdom, presale is not an important source of financing, at least not for listed developers. Developer’s decision to presell is also not conditioned on the historical price trend which home buyers relied on. These results are robust across different model specifications.

Shadow Banking and the Property Market in China

Robert Van Order
,
George Washington University
Rose Neng Lai
,
University of Macau

Abstract

This paper studies the evolution of property values and the connections between shadow banking and property markets in China. We use Pooled Mean Group estimation to analyze Chinese house prices in 65 cities from 2007-2014, defining the “fundamentals” of housing prices with the Gordon dividend discount model, and using lagged rents, prices, real, nominal interest rates, and shadow banking activity as short term explanatory factors. We find that the cities tend to share long run fundamentals and adjust relatively quickly to deviations from the fundamentals; we do not find anything close to bubbles. We also find that house prices grow more rapidly with availability of shadow banking funds, which have grown rapidly. A policy implication for the Chinese government is to focus on regulatory monitoring in this funding sector.
Discussant(s)
Tien-Foo Sing
,
National University of Singapore
Ru Hong
,
Nanyang Technological University
Charles Ka Yui Leung
,
City University of Hong Kong
Brent Ambrose
,
Pennsylvania State University
JEL Classifications
  • D0 - General
  • R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location