Open AccessInternational Real Estate Review
Author(s) -
Rose Lai,
Robert Van Order
Publication year - 2019
Publication title -
journal of the asian real estate society
Language(s) - English
Resource type - Journals
ISSN - 1029-6131
DOI - 10.53383/100285
Subject(s) - economic rent , real estate , economics , shadow (psychology) , shadow price , monetary economics , china , dividend , econometrics , financial economics , finance , microeconomics , psychology , mathematical optimization , mathematics , psychotherapist , political science , law
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 2007-2016, define the "fundamentals¨ of housing prices with the Gordon dividend discount model, and use lagged rents, prices, real and 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 bubbles; rather houses are like growth stocks with house prices rapidly chasing growing rents. More importantly, we find that house prices increase more quickly with the availability of shadow banking funds, which have grown rapidly.