Method For Establishing Early Warning System Of Real Estate Market Based On The Theory Of Entropy

Real estate is the most fundamental property in human beings’laboring, living, and social activities, and also holds the largest proportion in social fortune. Real estate industry, being a tertiary industry, plays a very important position in the national economy and social development. Due to its basic and foresighted nature in the national economy, and the characteristics of territoriality, stationarity and market cycle fluctuation, the real estate industry has drawn high attention from governments, theory and practice professions. During the past two decades, China’s real estate industry experienced a rapid development and continued to highlight a more and more important position. However, affected by many factors of the industry’s own characteristics and variation of the external economic environment, this industry has gone through a complete cycle fluctuation.In domestic academia, theoretical research on the real estate market health evaluation system is in an initial stage. National Bureau of Statistics of China established Real Estate Climate Index (RECI) in1997and the Ministry of Housing and Urban-rural Development of China launched a program to develop an Early Warning System (EWS) in13pilot cities in2003. Afterwards, the EWS of real estate market continue to be explored in theoretical circle. Although the establishment model of EWS has reached a consensus by many scholars, opinions on the specific methodology remain divergent. As the real estate market keeps progressing and the world economy environment changes, the existing warning system no longer adapts new market situations and drawbacks are prominently emerging.This work concluded the advantages and disadvantages of the previous warning system establishment methods, proposed a new model based on the entropy theory and explored the warning system establishment method based on this model, In order to avoid man-made subjective factors, structural entropy method is adopted to select the index. Synthesized analog EWS and diffusion index are combined to build the EWS. Meanwhile, definition of the diffusion index and the formulas is reasonably rearranged concerning the limitations and disadvantages of the previous methods. At last, empirical study is made on the Shanghai real estate market using the entropy-based real estate market EWS developed in this work.The empirical study revealed that the Shanghai real estate market has gone through several phases during the15yeas (1996-2010), i.e. decline phase, depression phase, reviving phase, expansion phase, overheating phase, contraction phase, decline phase and reviving phase. From the depression phase in1997to the overheating phase in2004and the depression phase in2008, the Shanghai real estate market has completed a typical market cycle, i.e.12years. The year1997and2008is a depression period of Shanghai real estate market, this agrees with the market developing progress of real estate market. Prediction can be made that the Shanghai real estate market will experience a two-year stable development period.