Region-specific Estimates of the Determinants of Real Estate Investment in China

TLDR

The study uses a reduced‑form equilibrium model to examine the sources of real‑estate investment differentials across 22 provinces, five autonomous regions, and four municipalities in China. The model is estimated on panel data from 2001 to 2006, comprising 186 observations. Results show that demographic, economic, and planning factors are the primary drivers of regional investment variation, with real interest rates having a modest effect, leading the authors to recommend that the government adjust policy parameters to promote a more balanced investment distribution.

Abstract

This paper utilises a reduced-form equilibrium model to investigate the possible sources of real estate investment differentials among 22 provinces, five autonomous regions and four municipalities of the People’s Republic of China. The model is estimated using panel data from 2001 to 2006, yielding a total of 186 observations. Specifically, empirical results suggest that demographic, economic and planning factors are the major determinants to cause real estate investment to vary among Chinese regions. The relatively small coefficient estimate of real interest rates indicates that it has a significant but modest impact. Based on the coefficient estimates, this paper finally suggests that the Chinese government should focus and work on several policy parameters in order to achieve a more balanced state of real estate investment across Chinese regions.