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
Date Written: November 1, 2017
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: Suggested Citation