Real Estate Prices Analysis Based On Demographic Bonus And RMB Exchange Rate

Real estate is a kind of special asset, it has dual properties of consumption and investment. In the long run, according to the CAPM, real estate asset is similar to other assets, whose prices mainly depend on the discount value of services that real estate asset can provide, including: first, the discount value of future rents; second, the discount value of future residual value when real estate sells. In the same vein, real estate investment, as other capital commodity, is determined by Tobin's Q. This theory means that investment is an increasing function of the ratio of capitalized value of the project and unit capitalized replacement cost. According to this explanation, the seasonal changes of house price are due to business cycle, changes in interest rate and risk premium. However, classical capital asset pricing model lacks explanation power to the volatility of house price, real estate market has some properties that are different from other market. Recently, there are two debates about real estate prices: the first one is whether real estate price is related to demographic bonus, on surface, the increase of population can increase the demand for real estate asset, but the empirical results are not consistent, some scholars believe that demographic factor positively drives the real estate prices, while some scholars find no relationship between the two. Moreover, there lacks theoretical support for this issue; the other is whether RMB exchange rate has impact on the real estate prices, in theory, the appreciation of RMB real effective exchange rate positively impels real estate prices, because when real effective exchange rate appreciates, international investors can not only obtain investment return in the real estate market, but also can gain the return of RMB appreciation. Therefore, the appreciation of RMB real effective exchange rate can attract the investment of international investors in the real estate market, and increase the demand for real estate asset. While there are relatively few studies on the impact of exchange rate on real estate prices, no consistent conclusions about this issue as well. In the above context, the contents of this paper are: first, according to the facts in China, this paper establishes a real estate equilibrium price model, and demonstrates in theory that in completely rational market, real estate return is neither relevant to demographic growth nor labor feed rate, while is negatively related to urbanization level. Labor force pour into large cities from small villages can increase real estate price in the short term, but will reduce the real estate investment return eventually in the long run. The empirical results support the conclusions by using of real estate data and demographic data in China; second, this paper develops exchange rate and FDI model, since the relative rigidity of supply side, FDI has more significant impact on the demand side, thus demonstrates the relationship between exchange rate and house prices, also referring to Du Minjie, Liu Xiahui(2007), which illustrates the relationship between the appreciation expectation of RMB exchange rate and real estate prices, also using Chinese data, the empirical results show real estate prices are negatively related to RMB real effective exchange rate, one possible reason is that expectation of exchange rate appreciation is more significant after 2005 exchange rate reform, foreign capital inflow drives the nominal house prices, at the same time, the overall consumer price shoots rapidly, real house prices are actually decreasing in this period. The panel data empirical results show there is positive relationship between changes of exchange rate and real return of building selling prices.The study on the problems mentioned above, indicates that the population factor has no significant effect on house prices, while exchange rate is an important factor that affects real estate return, this paper studies the impact of demographic bonus and exchange rate on house prices, and the study has significant importance both theoretically and practically. The study can not only provide a clear conclusion for the"inflexion"debate in real estate market, but also gives suggestion for enterprise operation, and can put forward some references for macroeconomic regulation as well.