Abstract
Municipal governments in China established direct control of the supply of urban land in August 2004. This paper examines whether this government action mitigates the efficiency of the residential land market. Using a unique data set of detailed land and residential community transactions with manually collected location information for residential land lots in seven Chinese cities, this paper analyzes the relationship between the land lease prices and residential property prices from the first quarter of 2001 to the fourth quarter of 2007. Results indicate that property prices determined land prices both before and after 2004:3, but the effect was significantly weaker after 2004:3. This is consistent with the hypothesis that the market for residential land became less efficient after municipal governments gained direct control of the land supply.
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Notes
We are unaware of any other major changes in the land market in 2004:3; therefore, it does not seem likely that the changing relationship between residential land and property prices was due to other structural changes in 2004:3.
Fu (1996) notes that between 1988 and 1991, the Shanghai government granted a total of 12 land leases; the number increased to 201 in 1992 and 3,000 in 1993.
Tenders are often used by municipal governments to sell land directly occupied by them or by state-owned enterprises. Both auctions and listings are used for land “owned”/occupied by private entities. The main difference between auctions and listings is that offers are publicly observed and updated for listed lots over a much longer period of time (say a few weeks).
The data were purchased from GTA Information Technology Company in China.
The district information is manually collected by the authors.
It is worth noting that the condo prices are mostly presale prices. As Zheng and Kahn (2008) note, most condo projects in China (about 88% in their sample) are presold before the construction is completed.
A unit with no improvements has no plumbing or electrical fixtures, no appliances, and the floors, walls and ceilings are unfinished.
A unit with basic improvements has plumbing and electrical fixtures and finished floors, walls and ceilings.
These results are available from the authors.
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Acknowledgements
We thank the editor C. F. Sirmans and an anonymous referee for very constructive comments. We also thank Stephen Malpezzi, Grace Wong and participants of the 2008 Asian Real Estate Society annual conference and the 2009 Annual AREUEA Conference for valuable comments. All errors are ours.
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Peng, L., Thibodeau, T.G. Government Interference and the Efficiency of the Land Market in China. J Real Estate Finan Econ 45, 919–938 (2012). https://doi.org/10.1007/s11146-011-9300-9
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DOI: https://doi.org/10.1007/s11146-011-9300-9