The impact of a home purchase restrictions (HPR) policy on the distressed property market in Beijing

Song Shi, Hong Zhang and Jun Zhang

Journal of Housing Economics, 2022, vol. 58, issue PB

Abstract: Distressed property sales, which are carried out under court order by online auction, have increased rapidly in China in recent years. We examine how the implementation of home purchase restrictions (HPR) by the Chinese government in 2017 has affected the market for distressed properties in Beijing. We first use a stylized second-price auction model to derive theoretical predictions for how HPR should impact the number of auction entrants, auction prices/premia, and auction bidders’ average willingness to pay. We then test those predictions using data on court sales from the Taobao online auction platform from 2015 to 2018. By comparing legal auctions of housing before and after April 2017, we obtain empirical results consistent with the model's predictions. Specifically, our analysis documents that auction entrants fell by approximately 70% and auction premia by 16%–27% after the HPR policy was implemented. Furthermore, the average bidder's willingness to pay relative to the seller's valuation fell from 80% to 40%, which suggests that bidders who were affected by HPR had higher valuations, on average, than bidders who weren't.

Keywords: Distressed property market; Home purchase restrictions; Bidder entry; Auction premium; Bidders’ willingness to pay (search for similar items in EconPapers)
JEL-codes: D44 R38 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhouse:v:58:y:2022:i:pb:s1051137722000493

DOI: 10.1016/j.jhe.2022.101877

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