Land Value Determination in an Emerging Market: Empirical Evidence from China

Abstract

A key asset that is important in international markets is real estate - raw land and developed properties. Also, real estate can clearly have difference local rules for investment and transactions based upon bankruptcy protection, appraisal standards, lending standards, taxation and planning processes across countries. This can be particularly true when assessing a developing country. In this research, we assess the relative pricing behavior for land in Beijing China. We see this as important for three core reasons. First, China has a strong growth economy but is still in many ways an undeveloped country and thus we do not have significant data about asset pricing behavior there. Second, China has not traditional had a market based land and property transfer system - thus, it is interesting to assess how prices are determined relative to typical market expectations. Third, we have extensive evidence on pricing behavior in the USA and Europe but little such evidence on China - are the same variables important in Land pricing in China and are there other unique local variables. For example, there have been 22 articles published in core journals on Chinese land and only two provide empirical estimates of value attributes and none of there are as extensive as our study. Thus, we consider a large data set of land prices in Beijing China and assess the relative pricing behavior.Our key results are that pricing behavior in general follows the traditional expected variables as determined by size, planning use, location and other neighborhood characteristics. However, we also find that land prices are associated with buyer characteristics; for example, foreign investors pay less than local investors.