The Research Of The Effect Of The Adjustment Of Interest Rates Policy On Real Estae Price In China

The real estate is the mainstay industry in China. The healthy development of the realestate market is essential to the sustained and stable development of our economy andpeople’s livelihood issues.The rapid progress of our national economy and the improvingliving standard of people which the reform and opening up bring to us became the strongfundamental materials for the development of real estate industry. Since1998, the economy ofChina has developed rapidly, and the house prices are climbing fast.In order to curb theexcessive growth of house prices,the government took the centre straegy of adjusting thebenchmark deposit and loan interest rate,but the effect of adjusting is undesirable and cannotmake people satisfied.Therefore,this paper aims to intestigate the effect of the adjustment ofinterest rates policy on the real estate market prices,the purpose of which is to help thegovernment to formulate the macro-regulation scientifically, enhance and improve the policyeffects and find the reason of hindering effection of interest rates policy according the specificcircumstances in our country.It can also help investors and consumers to predict the status ofsupply and demand and the price movements in the real estate market and make the rightdecisions which benefit to them.The paper analyzes the impact of the adjustment of interest rates policy on the real estatemarket prices from both theoretical and empirical perspectives.Before the discussion of thetheoretical perspective,it intruduces two aspects according to our national conditions.One is tosummarize the basic concepts and types of interests,then to outline the history of theadjustment of interest rates policy from our reality;the other is to make the conclusion of thetrends of the real estate market in our country through the analysis of the real estate marketconditions since the reform and opening up in1978.The discussion of the theoreticalperspective includes three aspects:firstly, analyzing the formation mechanism of the realestate market prices through the cobweb model equilibrium theory and generalmerchandise;secondly,researching the effects of the interest rates adjustment on both thesupply and demand which is divided into the own-living and investment-oriented in realestate market,and analyzing the effects through the Four-quadrant model in order to sum upthat the short-term interest rates adjustment makes the real estate market prices produce thesame effect,while the long-term interest rates adjustment makes the pricereversed;finally,making the conclution that the interest rates adjustment makes the pricereversed in real estate make from the perspective of the product attributes,the cost of borrowing and portfolio except the market expectations which cannot determine the trend.In the discussion of the empirical perspective, the paper collects the changing data ofinterest rates policies from1998to2010and three groups of the housing price index,uses theunit root test and builds ECM error correction model to make the following conclusions: thebenchmark interest rates and three groups of housing prices index data are integrated of onesequence, and each set of benchmark interest rates and the housing price index existlong-term cointegration respectively.Three-years,five-years benchmark deposit rates,thedeposit reserve ratios and the discount rates have an opposite impact on real estate marketprices,while the one-year benchmark deposit and lending rates,three-years and five-yearsbenchmark lending rates as well as the five-years housing loan interest rates have a positiveimpact on housing prices.It shows that the theoretical analysis of the interest rates adjustmenton the real estate market prices may not be consistent with the real estate market prices,whichreflects the complexity of transmission mechanism of the interest rates and the volatility ofthe market price.The results of the regression equation can be seen that the poor sensitivity ofthe interest rates adjustment on the real estate market prices indicates that the result of theinfluence is not satisfactory even though the central bank’s adjustment of the interest ratespolicy would bring out the impact.To sum up,based on the analysis above,this paper concludes that the reform of interestrates liberalization is not perfect,that the mechanism of interest rate transmission does notwork well, and that the circulation of real estate market has problems.And the paper makespolicy recommendations which can stabilize the real estate price of China by modifying theinterest rates policy, such as gradually promoting the reform of interest ratesliberalization,making smooth the channel of interest rate transmission in the real estatemarket,and adjusting the mechanism of the operation of real estate market.