The Residential Real Estate Market in China: Assessment and Policy Implications

Annals of Economics and Finance, Vol. 18, No. 2 (November, 2017), 411-442.

32 Pages Posted: 19 Jan 2019

See all articles by Ding Ding

Ding Ding

International Monetary Fund

Xiaoyu Huang

Tsinghua University - PBC School of Finance

Tao Jin

Tsinghua University - PBC School of Finance

W. Raphael Lam

International Monetary Fund (IMF)

Date Written: November 1, 2017

Abstract

China's real estate market rebounded sharply after a temporary slowdown in 2014-2015. This paper uses city-level data to estimate the range of house price overvaluation across city-tiers and assesses the main risks of a sharp housing market slowdown. If house prices rise further beyond “fundamental” levels and the bubble expands to smaller cities, it would increase the likelihood and costs of a sharp correction, which would weaken growth, undermine financial stability, reduce local government spending room, and spur capital outflows. Empirical analysis suggests that the increasing intensity of macro-prudential policies tailored to local conditions is appropriate. The government should expand its toolkit to include additional macro-prudential measures and push forward reforms to address the fundamental imbalances in the residential housing market.

Keywords: China Real Estate Market, Housing Bubbles, Macro-Prudential Policy

JEL Classification: E43, E52, E58, F32, R31, C11, C32

Suggested Citation

Ding, Ding and Huang, Xiaoyu and Jin, Tao and Lam, W. Raphael, The Residential Real Estate Market in China: Assessment and Policy Implications (November 1, 2017). Annals of Economics and Finance, Vol. 18, No. 2 (November, 2017), 411-442.. Available at SSRN: https://ssrn.com/abstract=2933777

Ding Ding

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Xiaoyu Huang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Tao Jin (Contact Author)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

W. Raphael Lam

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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