Real Estate Price Formation Mechanism And Main Driving Factor Analysis

Since 1998, China’s real estate market-oriented reform has been more than a decade. The real estate industry has become a pillar industry of the national economy, which not only determines the well-being of millions of families’life, but also increasingly becomes a hot topic of society. In recent years, a rapid rise in real estate prices in Chinese cities seriously affects the quality of life of people, and the government has tried to introduce policies to stabilize real estate prices; however which remain their strong upward momentums.In this case, to understand the drivers of real estate prices is particularly important, which is the purpose of this study. This article first qualitatively analyses main factors affecting the real estate prices, including the characteristics of real estate market, the main factors affecting the real estate demand, the main factors affecting the real estate supply, and the main factors affecting supply and demand at the same time. Secondly, based on qualitative analysis and supply and demand model, this paper constructs a simple mathematical model to solve the real estate market-clearing equilibrium price, and combines with supply and demand curve to analyses various factors that may affect real estate prices driven mechanism to identify the main driving factors affecting the real estate prices. Then, by using 35 cities’2001-2012 panel data, the main driving factors that affect the price of real estate as independent variables, real estate prices as the dependent variable, this paper established econometric regression model to make an empirical measurement analysis, and discussed on regression results. Finally, on the basis of theoretical analysis and empirical research this paper summarizes the conclusion that Chinese real estate prices continue to rise mainly because of urban population growth, real estate prices growth expectation, people’s income levels, local fiscal expenditure and the cost of land. On considering regional differences, the paper finds that in eastern region with a higher level of economic development, the real estate prices perform higher sensitivity to prices growth expectation, and in economically underdeveloped western regions, the real estate prices are more sensitive to income levels. On conclusion, this paper put forward a number of policy recommendations that China should promote timely real estate tax system, increase "credit limit", and actively push forward the construction of "low-rent housing" and "public rental housing".