 The gradient of legal title in the housing market of China: a vertical dimensionGuangyu Cheng ERES from European Real Estate Society (ERES) Abstract: Legal title is a crucial instrument to secure the possession of assets and to enable the transfer of property in the formal market system. Without legal titles, property holders will be posed to a great threat of expropriation and eviction, and they will also feel hard to derive economic benefits from property exchanges because of restrictions from formal institutions. As pointed out by De Soto, a property without legal title is the dead capital rather than the asset that can accumulate wealth. Previous studies have assessed the market value attached to spatial distributions of dwellings in the absence of full legal titles by investigating the transaction of informal housings, because 'location' always matters in the real estate analysis. However, the concept of location not only refers to the geographical position at the horizontal dimension, but also involves other settings on the vertical dimension. Different vertical locations may bring different utilities for dwellers, leading to the variation of housing prices. Despite that, few attentions have been paid to the valuation of vertical location of properties when legal titles are absent. To fill this research gap, this study seeks to decipher how consumers value the vertical attributes of dwellings under the premise that de jure property rights are absent. The housing market in the urban fringe of China provides an ideal laboratory to conduct this investigation. Besides formal housings, a unique informal property named small property rights housing (SPRH) is also an important residential source for local people at the fringe of megacities. This type of informal housing is built on rural land collectively owned by villagers and then sold for urban residents without collective memberships. Like most formal residences in China, SPRHs are built in high-rise forms, and they can provide dwellers with spacious buildings, high-quality facilities and pleasant surroundings. In fact, it is hard to distinguish SPRH projects from other formal residential communities in terms of physical features. Despite the impressive built environments, SPRH still cannot be titled by governmental agencies. This is because that the development of SPRH fails to adhere to restrictions on collective-owned land use regulated by formal land systems. Due to the lack of legal titles, the transaction of SPRH is excluded from formal housing market of China, and it can only occur under the shadow. An empirical estimation is carried out with a dataset from an urban-fringe township named Chang’an where SPRH transactions are quite active. By comparing the difference in prices paid for formal housing units and SPRH units in the local housing market, this study finds that the selling price of SPRH unit at the local is significantly lower than that of formal housing unit with similar characteristics, all else being equal. More importantly, this study captured that the absence of legal titles can impact the value contribution of vertical attributes to the overall prices of housing units. Specifically, this study finds that: (i) the lack of full legal title can enhance the detrimental effect of building height on the selling price of housing unit; (ii) although high-rise residence has been the norm in urban China, dwellers still prefer to living in multi-storey buildings by paying price premiums, and this preference is stronger if the title of dwellings cannot be registered by formal authorities; and (iii) the deficiency in legal title status does not impact the valuation of consumers on the vertical position of housing units in the high-rise block. These findings reveal interesting interactions of property rights, housing attributes and housing prices from the vertical dimension. This research can shed new light on the understanding of market value of legal titles in a broader context. Keywords: Housing Price; Informality; Property Rights; Vertical Housing Attributes (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:arz:wpaper:eres2023_208 Access Statistics for this paper More papers in ERES from European Real Estate Society (ERES) Contact information at EDIRC. |
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