Shadow Banking and the Property Market in China
Author
Start Page / End Page
Volume
Issue Number
Year
Publication
Rose Neng Lai, Robert Van Order
359 / 397
22
3
2019
International Real Estate Review
Abstract
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.
Keywords
Chinese Housing Market, Shadow Banking, Pooled Mean Group Estimation