Housing prices dynamics in China : A case study of Shanghai, Tianjin and Hefei

Abstract: This paper studies the fundamental determinants of housing prices in three different developedcities in China. The main question addressed is whether fluctuations in the fundamentaldeterminants of housing prices around the world have an impact on housing prices inChina. The theoretical framework shows that housing prices in China are determined to alarge extent by stipulated factors that affect other big cities. They are: income per capita, interestrate, land price, construction cost and population and stock price.We use a linear regression model in our article. The empirical testing shows that these sixdeterminants used in Western countries are also applicable to Chinese real estate market.Most of them succeed in explaining the dynamics of housing prices. However, the resultsof the empirical testing are different among the three cities, so specific economic environmentof the three cities are necessary to understand the results.In our opinion, although some of the determinants fail to explain the fluctuations of housingprices, it is early to say there are bubbles due to the short history of Chinese real estatemarket. However, if policies are not implemented to calm down the overheating market insome first-tier cities, the consequences are hard to identify.