An Empirical Study on the Relationship between Real Estate Price and Real Estate Investment Trusts of Shadow Banking via VAR Model: The Case of China

Abstract

Purpose – The shadow banking business in China has expanded significantly in the past decade, especially in the real estate industry, which is closely related to the livelihood of many. The purpose of this paper is to investigate the relationship between the realized sale prices of real estates and the real estate investment trusts (REIT) of shadow banking in China. Design/Methodology/Approach – The analysis is performed with a VAR model based on Chinese data collected from Usetrust, CSMAR, the People’s Bank of China, and the National Bureau of Statistics of China during 2013 to 2020. It verifies the impact of the realized sale prices of real estate and relative macroeconomic indicators, on the REIT issuance of shadow banking by variance decomposition and impulse response analysis. Findings – The prices of real estate have the greatest impact on REIT, and there is a one-way Granger causality between them. The findings indicate that it would be beneficial to establish a real estate price prediction and warning mechanism for local governments and relevant institutions to avoid the potential risks to consumers, the finance market, and the real estate industry, which might be caused by price declines or shadow banking failures. Research Implications – In previous literature, it was found that the expansion of shadow banking affected the Chinese real estate market significantly, including an increase in real estate prices, risks of real estate bubbles, and a decrease in monetary policy. Most studies related to this topic collected data from official or commercial databases, respectively. Different from previous research to some extent, this paper is based on up-to-date data collected up the end of 2020. Additionally, it collects data from the two data sources from a broader aspect. The purpose of the research is to empirically explore the mutual influence of shadow banking and real estate prices, and facilitate the regulation of shadow banking for regulators and stakeholders.