Abstract:
This study analyzes the economic system dynamics of investment in real estate from
mainly four participants in China. Local governments limit the supply of commercial and residential
land to raise fiscal revenue, and expand debts by land mortgage to develop industrial zones and
parks. Led by local government, banks and real estate development enterprises forge a coalition
on real estate investment and facilitate real estate price appreciation. The above theoretical model
is empirically evidenced with VAR (Vector Auto Regression) methodology. A panel VAR model
shows that land leasing and real estate price appreciation positively affect local government general
fiscal revenue. Additional VAR models find that bank credit in addition to private and foreign
funds respectively have strong positive dynamic effects on housing prices. Housing prices also have
a strong positive impact on speculation from private funds and hot money.