The Property Market and the Macroeconomy of the Mainland: A Cross Region Study

Abstract

This working paper was written by Wensheng Peng (Hong Kong Monetary Authority), Dickson C. Tam (Hong Kong Monetary Authority) and Matthew S. Yiu (Hong Kong Institute for Monetary Research).

This paper studies the nexus between the property market and the macroeconomy of Mainland China in 1998-2004, using panel data models covering 31 provinces and major cities. The estimates suggest three main conclusions. First, there seemed to be a two-way linkage between property price and GDP growth. In particular, property price increase had a significant positive impact on investment, but no evidence of a wealth effect on consumption is obtained. Second, bank credit expansion did not seem to play an "accelerating" role in property price inflation, although the latter is found to have contributed to bank credit increase in recent years. Third, property price growth may have deviated from fundamentals in coastal areas, as evidenced by a negative relationship between housing and rental prices.

Keywords: Property Market, Macroeconomy, China

JEL Classification: C33, E22, R1