What Is Unique about Chinese Real Estate Markets?
Wang, Hongwei, Wang, Ko, The Journal of Real Estate Research
The political environment, legal system, and culture of China differ from that of most mature economies in the western world. Consequently, Chinese real estate markets should behave differently from the markets of the mature economies such as the United States and the United Kingdom. The rapid growth of the real estate markets (both in quantity and property appreciation rates) in Chinese communities during the past two decades provides us a great laboratory to examine some important issues that cannot be analyzed using data from mature economies.
While there is abundant research on real estate related issues for mature economies such as the United States and the United Kingdom, it is fair to say that we still do not know much about the real estate markets of developing economies such as countries in Asia and Africa. Should all real estate markets behave similarly to those of the U.S. so that we can ignore the development of other real estate markets around the world? The answer to this question is probably no. Will an examination of the real estate markets in developing economies help us explain some of the issues that we cannot solve by examining only the real estate markets in mature economies? The answer is probably yes. More importantly, in a financial world that aims to minimize investment risks (given a particular level of return), the inclusion of real estate markets of developing economies probably will provide a diversification benefit that cannot be achieved with the current assets in place. Given this, there is a need to enhance our understanding about the real estate markets around the world.
The Chinese real estate market is probably one of the most important markets in the developing economies that we should pay attention to for four reasons. First, China is the second largest economy in the world. Second, it has about 19.2% of the world's population. If we include the Chinese population in other countries and the populations of regions dominated by Chinese culture as well, the percentage will exceed 20%. Third, China has a political system, legal environment, and culture that are dramatically different from that of the Western world. Fourth and most importantly, China is a place that has experienced both a dramatic growth in its real estate markets and a huge increase in real estate values during the past decades. (This is in contrast to the not so stellar performance of the real estate sector in many other parts of the world during a similar period.) The unique characteristics of the real estate markets and the rapid growth (in both quantity and value) of properties in Chinese real estate markets offer a great laboratory for researchers to study the important issues that they, otherwise, might not be able to by looking at mature economies alone. However, it is fair to say that, up to now, studies related to Chinese real estate markets are still scarce and the literature on Chinese real estate markets has not been established yet.
To fill the gap, and as a first step toward this direction, the Journal of Real Estate Research devotes this special issue to the study of Chinese real estate markets. The remainder of this introduction is divided into four sections. The next section provides a brief overview of China's evolving housing market with some interesting summary statistics. Section 3 reviews the five papers published in this special issue. Section 4 discusses other important topics that are not addressed in this special issue, but probably are good topics for future studies. The last section concludes.
Overview of the Current Chinese Real Estate Market
China began establishing a liberalized private housing market only less than three decades ago. Since all urban land in China is government owned, the government has a strong influence on the real estate markets through the release of land reserves and the granting of development rights. The use of the presale method for most development projects might also increase the level of supply when market conditions are good. …