Real Estate Price Fluctuations And Systemic Risks: Evidence From The Channel Of Developers

The real estate price fluctuations may trigger the systemic risks in the real estate financial market. With the slowdown of the China‘s macroeconomic growth, the supply-demand relationship of the real estate market goes from supply shortage to equilibrium even regional oversupply, attracting a great concern about whether there is a bubble of real estate price. It becomes an important subject for the Chinese government to prevent the systemic risks which may be triggered by the real estate price fluctuations.In this context, by combining the actual situation of China‘s real estate market and real estate financial market, this paper systematically combs the transmission mechanism of systemic risks in the real estate financial market and the theoretical framework of the relationship between real estate price fluctuations and systemic risks, and then generalizes the transmission channels through which real estate price fluctuations trigger systemic risks. Based on the theoretical analysis, this paper provides an empirical analysis on how real estate price fluctuations pose a risk for the developers, and the ensuing risk for banks and stock markets. According to the empirical results, this paper further makes a judgment about whether real estate price fluctuations would cause systemic risks through the developer channel.The empirical analyses concludes that systemic risks transmitting though the develop channel exist in China‘s real estate financial market. First, real estate price fluctuations will trigger the liquidity risks of real estate developers. Given the high inventory levels of real estate developers, real estate price falls will reduce the developers‘ ability of solvency and financing and lead to liquidity risks. Second, real estate price fluctuations will result in the liquidity risks of banks through the developer channel. In particular, liquidity of banks will descend more quickly when real estate price rises, which leads to liquidity risks for banks when real estate price declines. The liquidity risks of developers will further pose a risk for the liquidity of banks. Third, the fall of real estate price after the rise will exert an adverse impact on the stock market. When the real estate price turns to decline from rapid growth, the stock price of development enterprises will plunge, which is beyond the expectation of investors, resulting in losses to the investors and reduction of developers‘ ability to access the capital market to raise money.This dissertation provides some suggestions for developers, banks, stock markets and the government. For the developers, the primary task is to prevent the liquidity risks. More attention should be paid to inventory management, and meanwhile take both long-term and short-term solvencies into consideration. Supports are required for the reasonable financing needs and liquidity improving of developers. For the banks, financial products of the secondary real estate financial market should be encouraged to improve the liquidity and distribute the risks. The banks are also supposed to carry out a more strict supervision over the presale funds of commercial housing to reduce the credit risks resulted from the presale system. For the stock markets, it is of great importance to reinforce information transparency, especially the information disclosure of their business distribution and inventory status, to enhance the efficiency of capital allocation of stock markets. For the government, housing demand of self-occupied and improving living conditions should be actively supported, and the supply ought to be regulated according to local conditions to promote the balance between supply and demand. It is necessary for the government to prevent the systemic risks and achieve a stable and healthy development of the real estate market.