Does developers' ownership structure shape their market behavior? Evidence from state owned enterprises in Chengdu, Sichuan, 2004–2011

Abstract

Real estate development is a complex speculative endeavor and developer firms take a variety of forms throughout the world. State run development companies are relatively common and China is no exception. State Owned Enterprises (SOEs) have played a major role in China's transition to a market-based real estate sector, yet we know relatively little about the housing they build relative to private companies currently. To assess how their performance differs from private companies, we use a comprehensive set of georeferenced housing transactions, joined with remote sensing data and data on neighborhood amenities and transportation infrastructure, to analyze the dynamics of the Chengdu housing market from 2004 to 2011. We observe a drop in the variation in housing price and size, as well as a growing premium for larger units that we connect to changes in government regulations. Importantly, we find that units developed by SOE sell at a discount of roughly 7%. To explain this discount, we draw on literature and examine pricing strategy, difficult to measure quality elements, preferred treatment by local governments, and efforts to fulfill social goals related to housing provision. The study outlines directions for future research and we recommend the Chinese government formalize the relationship between SOEs in national housing policy to facilitate the production of lower-cost housing in a more consistent and equitable manner.