Shadow Banking and the Property Market in China

Rose Neng Lai and Robert Van Order ()
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Robert Van Order: George Washington University

International Real Estate Review, 2019, vol. 22, issue 3, 359-397

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 (search for similar items in EconPapers)
JEL-codes: L85 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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