A Research Of Real Estate Cycle In China Based On Grey-Markov Model

Real estate industry has been one of important industries in China's economy and the main motive for economic growth. Since China's reform and opening policies, real estate industry has entered into an unprecedented period of fast growth, and in the process, the cyclical fluctuation in this industry is attracting researchers'attention. They identify and describe such fluctuations through various approaches so as to probe into causes of such cycles and their determinants. Since real estate fluctuation influences the stability of China's economic system, Grey Markov model is applied in this paper, and on the basis of such a model, we research the cyclical fluctuation of China's real estate industry from 1998 to 2009 and predict the tendency of such fluctuation in the future. The outcome shows that from 1998 to 2009 China's real estate industry experienced four short term cycles and would stably develop with high probability. In addition, grey correlation analysis and linear regression present the main reasons for such cycles. The urbanization ratio has loose relationship with these cycles; the credit of construction industry is an important factor of these cyclical fluctuations while such fluctuation shows negative correlation with real interest rate and positive correlation with real GDP growth rate. Finally, this paper makes qualitative analysis on some other factors which affect real estate development and suggests that"hot money" and policies change both take effect on cyclical fluctuations in this industry.This paper has 6 sections:in the first section, we make literature review on real estate cycles and their relation with the development of real estate industry; in the second section, on the basis of the definition of real estate cycles, some important indicators to influence such fluctuation are introduced; in the third section, the Grey Markov model is presented and then the model is applied to analyze China's real estate cycles in section four; in section five, we use qualitative and quantitative analysis to explain these cycles; in section six, conclusions and suggestions are provided.The creative points in this paper lie in the time series sample, which is after real estate reform in China and avoids inaccuracy due to institutional change; secondly, the introduction of Grey Markov model into real estate cycle research can replace linear regression to analyze short term situation with inadequate data; this method can separate cyclical fluctuation from long term growth, which will disturb our analysis; lastly, we find determinants to influence real estate fluctuation.