The Effect of Foreign Investment on the Real Estate Industry in China

Abstract

This paper discusses the development of real estate industry in China in recent years. It argues that Hayek's theory of economic fluctuations can help to explain the contraction of the real estate market in 1994 in China as a whole. However, as a theory of the closed economy, Hayek's theory is found to be no longer robust when applied to cities where there is heavy foreign direct investment, such as Shanghai. We believe that it is the foreign direct investment that is making the real estate industry in Shanghai perform well, despite the government's tight monetary policy and the contraction of the industry in other parts of the country over the same period. The paper also argues that, while most foreign investment in real estate is classified as direct investment, it is very different from 'typical' foreign direct investment except in form and in fact shares most of the characteristics of portfolio investment. Foreign direct investment in real estate reflects the imperfections of China's capital markets.

Transnational Buildings in Local Environments

“…These policies included alterations in the urban land use, finance, and investment structure, which started to include more flexible policies of loaning, capital pooling, attracting foreign investments among others into the urban property sector. The property industry grew thereby rapidly, soon becoming the city's leading economic sector (Dianchun Jiang et al, 1998). The result was an ever-accelerating proliferation of local urban developments and realty investments.…”

Untitled

“…Unlike other types of foreign capital, FIRE is the most difficult form of foreign capital to be disentangled into short and long-term or into FDI or FPI. This point has been highlighted by Jiang, Chen and Isaac (1998), Sirmans and Worzala (2003) and He, Wang and Cheng (2011), who argued that although foreign investment in real estate is fully in the form of FDI, the objective remains the same -to earn higher returns to unit capital.…”

“…In addition, it is interesting to note that there was a longer persistence period of burst than the boom period 3 (see Table 1). 1983-1986 (4) 1987-1993 (10) 5 1987-1989(3) 1990-1993(4) 6 Italy 1987-1992(6) 1993-1998(6) 7 Spain 1986-1991 1992-1998 (7)…”

Urban Land and Housing Markets in the Punjab, Pakistan

“…As the Punjab's economic development improves, the demand for housing, industrial, commercial and service facilities will also increase (Jiang et al 1998). This will place considerable pressure on land and real estate market as investors search for plant locations.…”