Research On The Relationship Between The Development Of Real Estate Sector And The Structure Of Its Funding Sources

Since China’s reform and opening in recent years, the economy has experienced a rapid development, to which real estate sector has contributed a lot. And the hot economy also stimulated the real estate industry in return, especially pushing up the house price. As a capital-intensive sector, real estate has to take advantage of diversified funding sources to raise huge sum of capital, which may lead to financial crisis according to some international experiences. In order to reduce the potential risk, a lot of policies have been put forward by our government and the effect can be directly reflected on the funding sources of real estate industry. Basing on the importance of funding sources, this paper conducts a deep research on the relationship between this industry and its funding structure.According to the existing researches at home and abroad, we found that both foreign and domestic scholars have conducted a lot of studies on the relationship between the development of real estate sector and a single financing channel such as bank loan, international capital, private fund and Reits etc. Some similar conclusions have been drawn by these scholars, but there are still some differences, which reflect the peculiarity of our domestic real estate industry. Summarily, most studies focused on the influences from a particular finance channel and did not take sales income as one of the funding sources. Only a few papers have taken sales income into consideration and conducted researches from the angle of funding source structure, but they only took advantage of cross-section data in a certain year or time series data of a certain city so no comprehensive conclusions were drawn. Apparently, previous studies have got some achievements but still leave something to be desired. So this paper tries to conduct a further and more comprehensive study from the angle of real estate sector’s funding source structure and to find their causal relation with this industry, their contribution to the fluctuation of this sector and its long-term and short-term impact. Besides, regional differences are also taken into consideration in this paper and we hope to put forward practical policy advices basing on the final empirical results. After realizing the points which need to be improved, we improve the definition of funding structure, enlarge the sample size and lengthen the sample period in this paper. The subsequent contents are as follows:A theoretical study is promoted at first in order to explain the capital chains of real estate industry and to show the impact that different funds can make on each link of the real estate investment process. Then the scope of funding source is delimited and some typical channels are listed. After that, proper indicators are selected from statistic books to define the funding structure.Secondly, a quantitative analysis, which can explain the developing trends of the financing structure and real estate investment from1999to2010, is conducted before empirical analysis.Thirdly, in the empirical analysis part, we collect the quarterly data from1999to2010in order to promise the stability of time series. And X-11seasonal adjustment method is taken to smooth the data and to reduce the influence of seasonal factors. Then all smooth data are all treated with logarithmic method to reduce the influence of Heteroscedasticity. Since the result of ADF test shows that all series obey to Ⅰ(1), which means that all the series are stable after first-order difference, so we treat all the series with first-order differential algorithm and then the data’s implications are converted to be the growth rates of variables. Then we use Granger Casual test, Impulse Response test and Variance Decomposition analysis to find those funding growth rates’ causal relation with real estate investment’s growth, its long-term and short-term effect as well as its contribution to the fluctuation of real estate increasement.The conclusion of this paper is as follows:Firstly, the growth rate of domestic loan and other funds both show two-way Granger casual relations with real estate growth, while self-raised funds and foreign capital not.Secondly, domestic loan makes more contribution to the causes of real estate growth fluctuations.Thirdly, the impulse of domestic loan growth rate can cause real estate sector’s short-term violent fluctuation, while its long-term effect is not very apparent. On the contrary, other funds’ impulse can cause real estate market’s long-term strong reaction but its short-term effect is comparatively weaker. Fourthly, according to the reaction from real estate investment to domestic loan and other funds, it is easy to see that when real estate investment develops faster and faster, in the long run the capital supply of commercial banks becomes more and more cautious and the flow of other funds, which can reflect market demand to a great extent, also slows down because of the higher house price caused by more real estate investment.In China’s eastern, central and west regions, the conclusions have showed some differences. The result of Eastern region shows highest degree of agreement with the whole nation. In central region, self-raised funds and domestic loan play important roles in pushing real estate investment in this area, the influence of domestic loan is long-term while self-raised funds only lead to violent short-term reaction. What’s more, their contributions to the causes of real estate growth fluctuations are almost the same. As for western region, other funds, which can reflect market demand to a great extent, is the only factor that can cause apparent impact on the real estate investment in this area and there are two-way casual relation between them.Basing upon the conclusions above, the advices of this paper to macro-regulation are as follows:First of all, the target of regulation from the perspective of funding source structure should focus on domestic loan and other funds.Secondly, in order to maintain real estate market’s stability, the first task is to control the granting of loans, then to guide market demand. The stable growth of these two funding sources is the premise of real estate investment stability.Thirdly, the regulation on other funds can cause long-term effect while domestic loan regulation can bring short-term violent influence to real estate investment market.What’s more, regional differences should also be taken into consideration when macro-regulation policies are executed.Finally, it is necessary to point out that the research of this paper is conducted from an angle which is seized by only a few scholars, the definition of funding sources is widened, the sample is enlarged as well and the final conclusion is relatively novel, but it is clear that the factors which impact on real estate sector’s development are far more than the capital factors mentioned above. Therefore, it still requires a more comprehensive and deeper research in the future.