The Impact of Urbanization on Investment of Real Estate Industry in China

Abstract

During the period of 1995 to 2014, the urbanization rate in Mainland China increased from 29.04 to 54.77 %, with an annual increase of 1.28 %. Meanwhile, the real estate market also boosted dramatically and worked as a driving force for the national economy. The interaction between urbanization and development of housing markets has long been investigated by researchers. Theoretically, the urbanization process should boost the demand for various properties and nurture more investment in this sector. For another, real estate industry works as a foundation and provides a supporting environment to the urbanization process. Previous research mainly focuses on qualitative policy analysis instead of direct quantitative analysis and the majority discuss about the housing price. This paper would like to fill in the knowledge gap by exploring the relationship between urbanization and annual real estate investment. Based on the macro data in China over the past 20 years, empirical study is carried out, with application of Unit Root Test, Co-integration Test and Granger Causality Test. The findings suggest that there is a long-term equilibrium and a one-way granger relationship between urbanization rate and annual real estate investment. The findings are useful for understanding the sustainable development of real estate industry and forecast future property demanding caused by the urbanization process.