Factors Affecting Regional Difference In Real Estate Price

Since economic reform, the housing demands are increasing, and the real estate market are booming gradually, which play a important role in the growth of our national economy and the improving of people's living standards. But in recent years, China's prices showed serious regional differences, which is not conducive to the development of real estate control policies, and hinder fair competition in the real estate market. We will research the causes of regional difference s in real estate prices. This can help policy-makers to maintain stability of price, narrow the price gap among different provinces gradually.There are three reasons for regional differences in real estate price. The First is the regional differences in income levels. Because of different geographical and tilting of national policies, the economic developments in southern, middle and western regions of our country are extremely uneven. The large differences between people's income make housing needs of all regions very different, which lead to differences in real estate prices. Secondly, the international "international speculative capital" concentrates differences of prices. As the growth of China's GDP, asset prices rise significantly. In recent years, RMB appreciation is expected to continue. So lots of international speculative capital enters in the real estate market in China for speculation. However, due to economic conditions and the different levels of opening up, the scale of international speculative capital in our country has regional deference, which makes a serious real estate speculation and bubble enormous in certain areas when some areas are not subject to speculation and have relatively stable housing prices. Finally, as the economy has been run under the background of fluctuation and real estate is a pillar industry of national economy, the volatility in housing price is subject to economic fluctuations. Economy fluctuations in different parts of our country are different, leading to regional characteristics of fluctuation in real estate prices.There are many literatures at home and abroad about the regional differences of real estate prices, but they are all not thorough or only theoretical researches but empirical supports. Although many scholars have recognized that regional differences in income levels have impact on the price difference, but the study is not in-depth. We need to give further study. The fluencies of international speculative capital and economic fluctuations on price differences are not involved.We will study the impact of income levels, international speculative capital, and economic fluctuations on regional differences in real estate prices in theory. Firstly, as the income level represents a person's wealth and spending power and the property can be used both as consuming and investment goods, improvement of income level will affect the real estate in consumer demand and investment demand. In low-income provinces, the real estate demand is almost from consuming rather than real estate speculation. In high-income provinces, low-income people have consuming demand, and large number of high-income people buys speculative real estate, so that the total demand for real estate in these provinces is much higher than low-income provinces. Secondly, a large number of international speculative capitals in our country will expand the total money supply through the money multiplier, resulting in excess liquidity. If these excess funds enter into the real estate market, the price will rise. In the short term, if a large number of international speculative capitals buy real estate products, the speculative demand will increase sharply. And the real estate construction period is long, so short-term supply can not adjust to the demand, which will make house prices rise quickly, what's worse, international speculative capital have a "herd behavior". A large number of private funds will follow to purchase real estate, further pushing up prices and promoting the formation of bubbles. For provinces'opening up have different degrees, the scale international speculative capital they attract are different. This will result in regional differences in real estate prices in China. Studies show that international speculative capital concentrated in Beijing, Shanghai, Guangdong and other developed coastal provinces and cities. The rate of increase in property prices in these cities are certainly faster and more foam. Finally, the real estate market is developing in the background of macroeconomic,and the real estate is one of important fixed investment assets. With the faster economic growth, the demand of office buildings, plant and houses will increase, affecting the price. Macroeconomic fluctuations will result in real estate price fluctuations. Regional characteristics in economic fluctuations will lead to regional price fluctuations.After theoretical analysis, it entered the empirical part. First of all, we select indicators to measure income levels, international speculative capital, and economic fluctuations. The disposable income of urban residents measure income. Total imports and exports are on behalf of the size of international speculative capital. We measure economic fluctuations using HP filter method. Assumptions set { yt } is a GDP time series, which contains trends and periodic volatility. { y tc} is the cycle volatile components, and { y tT}is the trend component, then Using HP filter we separate long-term trends { y tT} from the GDP time series { yt } which contain a long-term trends and cyclical fluctuations. we obtain the cyclical fluctuations for our data to study economic fluctuations.Then we use the data from the first quarter in 2000 to the fourth quarter in 2008 in 30 provinces of our country. The real estate market prices are explained variable. The three explanatory variables are disposable income of urban residents ( YD i,t), total imports and exports ( HMi ,t) and economic fluctuations ( YCi ,t). We use these four variables to establish panel data model. By the test, we establish the fixed effect and variable coefficient model, as follows. LN (Pi,t )=αi+β1i LN(YDi,t)+β2iLN(HMi,t)+β3iYCi,t+εi,ti = 1,2,...,Nt = 1,2,...,TThen we test the above model to measure the comprehensive impacts of disposable income, international speculative capital, and economic fluctuations on the real estate prices. To remove heteroscedasticity and serial autocorrelation, we use the cross-section SUR weighted testing method. The regression analysis revealed that three variables are significant in almost all provinces. And differences in three explanatory variables result in differences of regional real estate prices. Now we analyze the results of each variable. The effects of eastern high-income provinces are less significant than provinces with low income, which indicate that prices in these areas have large bubble. In general, the impacts in central and western provinces are higher. This indicates that the prices of low-income provinces are more dependent on the economic development. Because of low opening levels, the central and western provinces have little international speculative capital, even none. So there are little impact on prices. The eastern provinces, especially Beijing, Shanghai and Zhejiang are significantly affected. So the bubble in a large extent is due to the speculation of international speculative capital. As for economic fluctuations, Eastern provinces'prices are less sensitive, indicating fluctuations in the local real estate prices are affected by other factors. Overall, real estate prices in central and western provinces are more on the sensitive to macroeconomics, indicating that the real estate markets in these areas are more closely with the national economy.