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Evaluating Conditions in Major Chinese Housing Markets

47 Pages Posted: 19 Jul 2010  

Jing Wu

Institute of Real Estate Studies, NUS; Institute of Real Estate Studies, Tsinghua University

Joseph Gyourko

University of Pennsylvania - Real Estate Department; National Bureau of Economic Research (NBER)

Yongheng Deng

National University of Singapore, Business School and the School of Design and Environment; National University of Singapore (NUS) - Department of Real Estate

Date Written: July 2010

Abstract

High and rising prices in Chinese housing markets have attracted global attention, as well as the interest of the Chinese government and its regulators. Housing markets look very risky based on the stylized facts we document. Price-to-rent ratios in Beijing and seven other large markets across the country have increased from 30% to 70% since the beginning of 2007. Current price-to-rent ratios imply very low user costs of no more than 2%-3% of house value. Very high expected capital gains appear necessary to justify such low user costs of owning. Our calculations suggest that even modest declines in expected appreciation would lead to large price declines of over 40% in markets such as Beijing, absent offsetting rent increases or other countervailing factors. Price-to-income ratios also are at their highest levels ever in Beijing and select other markets. Much of the increase in prices is occurring in land values. Using data from the local land auction market in Beijing, we are able to produce a constant quality land price index for that city. Real, constant quality land values have increased by nearly 800% since the first quarter of 2003, with half that rise occurring over the past two years. State-owned enterprises controlled by the central government have played an important role in this increase, as our analysis shows they paid 27% more than other bidders for an otherwise equivalent land parcel.

Suggested Citation

Wu, Jing and Gyourko, Joseph and Deng, Yongheng, Evaluating Conditions in Major Chinese Housing Markets (July 2010). NBER Working Paper No. w16189. Available at SSRN: https://ssrn.com/abstract=1641566

Jing Wu

Institute of Real Estate Studies, NUS ( email )

Institute of Real Estate Studies
21 Heng Mui KengTerrace, #04-02
Singapore, 119613
Singapore

HOME PAGE: http://www.ires.nus.edu.sg

Institute of Real Estate Studies, Tsinghua University

Heshanheng Building
Tsinghua University
Beijing, 100084
China

Joseph E. Gyourko

University of Pennsylvania - Real Estate Department ( email )

Philadelphia, PA 19104-6330
United States
215-898-3003 (Phone)
215-573-2220 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yongheng Deng

National University of Singapore, Business School and the School of Design and Environment ( email )

4 Architecture Drive
Singapore 117566
Singapore
(65) 6516 8291 (Phone)
(65) 6774 1003 (Fax)

HOME PAGE: http://www.ires.nus.edu.sg

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore
(65) 6516 8291 (Phone)
(65) 6774 1003 (Fax)

HOME PAGE: http://www.ires.nus.edu.sg

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