Economic Increase, Development Of Real Estate Industry And Macro-control

Under the financial crisis background, the vigorous development of real estate becomes an effective and strong means to recover the economic growth rapidly. However, the rapid growth of real estate could also lead to housing overheating and even housing bubble. Scholars have done fruitful researches on the relationship between the development of real estate in China and economic growth, as well as the impact on real estate of macro-control. Yet these studies neglect, to some extent, inherent features of real estate market and thus the results are not accurate enough to explain and lead the development of real estate in China.Based on the reasons above, this paper, using theoretical models and empirical tests, discusses the interaction between the development of real estate in China and economic growth, the relationship between macro-control and incentive of government action, the reaction of macroeconomic regulation, the impact of risk, and related theoretical and practical issues, then provides theoretical supports and political suggestions for the coordinated development of real estate in China and national economy.The paper is divided into five sections. The corresponding contents and conclusion are as follows.The first section includes Chapter 2, Literature review, which is theoretical basis of the paper. On the literature basis of Introduction and comment of the interacting relationship of global real estate and national economy, in accordance with the status quo of real estate in China, this part discusses real estate cycle theory, real estate bubble theory, macro-control in China and other real estate related literature which provides supports for the research of later chapters.The second section includes Chapter 3, 4, and 5, the basic part of paper. Chapter 3 reveals the micro transmission mechanism that the development of real estate promotes economic growth via creating two-sector model containing spillover effects. The empirical result of two-sector model shows that, on one hand, real estate has direct contribution to the GDP growth; on the other hand, the GDP growth is also driven by real estate's indirect effect. Moreover, using the co integration test on real estate investment and GDP in thric industries, this paper finds that the leading role of real estate is more prominent in the secondary and the tertiary industry, and that of the imbalance between tertiary industry and real estate is unlikely in the short term. This conclusion is consistent with industrial policy in the present stage in China and the leading role of real estate on economy. In Chapter 4, the paper discusses how economic growth impacts the development of real estate. The empirical study on fundamental macroeconomic and real estate development shows that the changes of real estate in China basically meet the requirements of current rapid economic growth, and so the growth of macroeconomic could also explain the development of real estate in China.Chapter 5 regards as the soul of the paper, the most important part of the paper. The market of real estate in China, dosen't seriously derail from the standard of economic development in the whole country; but overdo in some areas exists, since the development of local real estate depends on the policy decision of local government. In Chapter 5, we establish a game model of local government under central control, connecting first class market and second class market of real estate; the game model reveals inner machanisim between macro-control and incentive of government action. The result of studies shows, in order to control housing overheating, the central government increases the taxation levied on real estate; only when local government puts attention on local GDP growth, it will cut down the local investment on commercial housing and turn to promote the construction of affordable housing. However, the taxation policy could not achieve expected result when local government more values the local financial income. The policy of central government to increase interest will hit the market speculation, and prompt the investment of government on the construction of affordable housing. When the central government emphasizes the construction of affordable housing, they can enforce local government to increase investment on the construction of affordable housing, and hence the central government achieves the result of macroeconomic control.The fourth section includes Chapter 6 and 7, using the listed companies of real estate as samples to investigate effect and impact on real estate industry of major macroeconomic policies in China from the second half of 2002 to early 2008. In Chapter 6, we use multivariate regressive methods to test the market response of macro control, and find that controlling policies produce obvious market reaction in total and when the policies convey different signals, the corresponding result will be negative reaction or positive reaction. The major reaction is negative; however, the degrees of response of different directions are not significantly different. In Chapter 7, on the basis of the qualitative analysis of macro control policies on real estate, we use Chow test to research the impact of macro controlling policy on real estate risk. According to the empirical results, the systematic risk of listed real estate companies has undergone significant changes in this round of control; and with the continuation of control, the systematic risk in real estate is going to be stable. Further, using T- test with paired samples, we find that controlling policy for different types of real estate companies will have different effects.The fifth section includes Chapter 8, the last but not the least. It summarizes the theoretical and empirical researches, and provides conclusion on how to enlighten the real estate market, for standardization of real estate development, and policy recommendation on promotion of real estate on economic growth. These policy recommendations include continuing promotion of real estate marketisaiton, the regulation strengthening of real estate market, and coordination of central and local interests.