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Study on the Quantity Disequilibrium of Real Estate Market Effective Supply and Demand in Jiangsu Province



Zhu Jielu, Li Liusheng and Li Yuanhui
 
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ABSTRACT

This study plans to use the disequilibrium theory to analysis the real estate market effective supply and demand in Jiangsu Province. According to the data of 1990-2009, establish the total disequilibrium of real estate demand and supply mode. calculated effective demand and supply and disequilibrium degree by demand and supply model analyses the factors of the non-equilibrium which will provide analysis tools for real estate development businesses and consumers and reference for the government macroeconomic regulation.

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  How to cite this article:

Zhu Jielu, Li Liusheng and Li Yuanhui, 2014. Study on the Quantity Disequilibrium of Real Estate Market Effective Supply and Demand in Jiangsu Province. Journal of Applied Sciences, 14: 380-385.

DOI: 10.3923/jas.2014.380.385

URL: https://scialert.net/abstract/?doi=jas.2014.380.385
 
Received: June 14, 2013; Accepted: October 28, 2013; Published: February 08, 2014



INTRODUCTION

Many scholars did positive researches about the quantity disequilibrium of real estate market effective supply and demand in China. Ji (2005) stated hotter real estate development caused the disequilibrium of supply exceeding demand, investment promoted the development of real estate industry with high speed. There was insufficiency of effective demand with large latent demand which caused a large number of vacancy. Luo and Wang (2006) asserted that it was comparatively serious about unbalanced issue of effective supply and demand on commercial residential building in a certain period by analyzing the relative data of real estate market in China during 1987-2004. Zhou (2005) empirically analyzed the relationship between price fluctuation and speculation in 14 cities in China which showed disposable income had no obvious impact on the price of real estate. While speculation was the major impetus for the rising of the price of real estate which deviated long-run equilibrium value greatly. It appeared irrational exuberance in the market Li and Zheng (2001) studied the contradictory phenomena of excess supply and demand in the real estate market, thought it led to the unidentifiable situation of price information which caused the disequilibrium. Du (2010) proposed that here was disequilibrium in the real estate market which was against economic theory. Li (2010) pointed out it need to combine two way to limit the high price, namely containing speculation by implementing new policy on mortgage and increasing the supply of commercial residential building.

In the study, makes use of relevant statistics data of real estate from 1990-2009 in Jiangsu province with disequilibrium theory. combine with ADF (Augmented Dickey-Fuller) test and PP (Phillips-Perron) test analyze the data. The results reference for the government macroeconomic regulation.

METHODOLOGY

Basic assumption: There are Marshall’s Partial equilibrium theory and Walras’ General equilibrium theory which produce extensive effects on economy. Disequilibrium theory applied in the study is relative to Walras’, whose assumption as follows, market is perfect. Market competition is sufficient. Market information is full and smooth (Zhang and Li, 2008). Sensitive price is the only pilot light. Disequilibrium is temporary while equilibrium is the normality in the market. However, equilibrium theory asserts there is no perfect and fully competitive market, if information circulation can not go fully, it does not exist the equilibrium state under the condition of sensitive price adjustment. A certain monopolization exists in the real estate market which can not reach full competition because of capital and technology. Information can not be circulated fully among developer, investor and consumer which necessarily lead to inconsistency of supply and demand. Price can not be adjusted in time in the short term. Hence, disequilibrium theory truly reflect the operation law of real estate market.

Model setting
Principle of the minimum model:
Commodity market transaction in the state of disequilibrium can generally state by equations as follows:

Dt shows real estate demand quantity in the period of t. St shows real estate supply quantity in the period of t. Vector Xt, X’t are various exogenesis variables which can influence the supply and demand. X’t and Xt are parameters estimation. ut and u’t are stochastic error at random and satisfy the hypothesis that both mean are zero and sequence is not relative. Qt shows the real deal quantity in the real estate. Kornai put forward that macro economy trading volume should be less than the minimum of supply and demand in the process of studying East European , namely short edge theory. Therefore, quantity demanded and supplied usually are not equal in the real deal market. According to short edge theory, the shortage of macro quantity is common, trading volume fits trading equation (Wang and Deng, 1997):

Qt = min(Dt, St)

Disequilibrium model: The principle of the minimum model is the basis of disequilibrium model, but it doesn’t reflect the true condition of real deal. Due to imperfection and insufficiency of information smoothness in the real estate market, deficiency and overabundance exist simultaneously. The principle of the minimum model is not suitable because of disequilibrium of macro economy and structure. After polymerizing of real estate market, trade volume is usually less than any value of demanding and supplying. To better grasp the market essence of disequilibrium, many scholars at home and abroad post market segmentation and consider polymerizing effects. They put forward hyperbola polymerization equation. Recently it is relatively common to adapt CES production function and hyperbola polymerization equation to study disequilibrium in the real estate.

According to Kornai’s short edge theory, Burkett thought that among lots of micro-market there always exist different degree excess supply or excess demand. When it exists excess supply in the micro-market, supply quantity (St-Qt)/St will decline obviously if increasing commodity demand. Excess demand quantity (Dt-Qt)/Dt will increase comparatively. When demand continue to increase, excess demand will appear in the market and demand will be influenced (Dt-Qt)/Dt. The relationship between (St-Qt)/St and (Dt-Qt)/Dt is almost equal to rectangular hyperbola:

r2 = [(Dt-Qt)/Dt]*[(St-Qt)/St]

where, r shows the polymerization degree of micro-market. The trading volume can be gotten by solving the above equation:

By it find since r>0 is economic normality, so

The above sign is the identical to the principle of the minimum model’s. Generally speaking, the real estate market in country is in the state of deficiency and overabundance. Therefore, the study will adapt hyperbola model to study disequilibrium of real estate market in JiangShu province (Qi and Li, 2002).

ANALYSIS EXAMPLE

It mainly includes three parts. According to disequilibrium theory, setting effective supply and demand model of real estate market; selecting and arranging the data; parameter estimation which is the key point and also difficult point.

Setting effective supply and demand model of real estate market in Jiangsu province: According to supply and demand factors affecting real estate in Jiangsu province and utilized statistical data, the study selects per capita disposable income of urban households. The average price of commercial housing sales, city population proportion and the macro-economic policy as exogenous variables of demand equation of real estate. Select the average sale price of real estate, completing volume of developing of real estate, the level of national income, political and economical factors as exogenous variables of supply equation of real estate. According to the conception of effective aggregate supply, when the investment of residential sales and price is zero, developers have no desire to supply, namely, effective supply quantity is zero. Therefore, the constant terms of effective supply equation is zero. According to disequilibrium theory, disequilibrium model of effective supply and demand of real estate market in Jiangsu province is as follows (Riddel, 2004).

Effective demand equation of real estate market in Jiangsu province:

(1)

Effective supply equation of real estate market in Jiangsu province:

(2)

Trading volume equation:

(3)

where, Dt shows demand quantity of real estate market by annual sales area of commercial housing; St shows supply quantity of real estate market by annual completion area of commercial housing; X1 shows average sales price of real estate; X2 shows per capital disposable income of urban households; X3 shows city population proportion; X4 shows gross domestic product; X5 shows completion volume of investing of real estate; X6 shows above five-year benchmark lending rates of financial institution; udt and vd show, respectively total factors affecting effective demand and supply of real estate except all the variables mentioned above; α1, α2, α3, α4 and β1, β2, β3 are the parameters estimation in the model; α0 is the constant term; Qt shows forecasting the market transaction volume; r shows market friction coefficient.

Selecting and arranging of data: The study studies the disequilibrium of real estate market in Jiangsu province by selecting relative data of real estate market in Jiangsu province from 1990-2009. All the data are from statistical year of Jiangsu, the sales price of real estate derive from results that sales areas of real estate divided by sales volume of real estate. To eliminate the effects of price level, all are divided by urban consumer price index. (average sales price of real estate, investment volume of real estate, gross domestic product and per capita disposable income of urban households). The data arranged is shown in Table 1.

Parameter estimation
Real estate supply-demand quantity equilibrium estimation:
Equilibrium estimation means supposed market is in the state of equilibrium. (in the state of clearing Qt = Dt = St. Get the initial value of parameter on trading volume equation by using generalized least squares estimation on effective demand equation and effective supply equation.

Variable stationarity checking-ADF checking: If time series adopted in the process of modeling is not stationary, it probably leads to spurious regression. Therefore, to ensure the regression result, it will carry out test on the stationarity of sample data by applying extending Dickey-Fuller test (ADF test).

According to ADF test principal, first carry out stationary test to original sequence and difference sequence. Observe the scatter diagram of time series to decide whether original sequence vary at random and fluctuation trend vary with time and whether adding intercept and trend in the test. At the same time, ensure lag by AIC conduct.

Test results show original sequence of sample Dt, St, X1, X2, X3, X4, X5 and X6 can not refuse the original hypothesis. Namely, existing unit root is time series of unstationarity.

Cointegration test: According to unit root test result and cointegration theory, use cointegration relationship of different variables of E-G test method (1-2), first use Eviews6.0 software to regress. Regression results show in (4-5), respectively, then carry out the unit root test of regression equation residual rdt and r’dt, the results show in the Table 2 and 3.

Table 1: History datas about estate market in Jiangsu Province from 1990 to 2009 year

Table 2: Unit root test results of Eq. 1 residuals (rdt)

Table 3: Unit root test results of Eq. 1 residuals (r’dt)

ADF test is Augmented Dickey-Fuller test, PP test is Phillips-Perron test.

According to above charts, it can conclude that residual udt and rdt is stable in the level of 1%,which shows that co-integration relation exists among each variable. Model as follow, respectively (Effective demand equation on the demand of real estate in Jiangsu province):

D = -8.7354+2.0420X1+1.3217X2+1.4297X3-1.7613 X4
(2.0352)(0.4509) (0.9973) (0.2818)(1.1088)(4)
t = (-4.2921) (4.5284) (1.3251) (5.0723)(-1.5884)
R2 = 0.9939 R2 = 0.9923 F = 611.9248 DW = 2.2624
(4)

Results show by Durbin-Watson test (DW test) because sample volume n is equal to 20 which prove the number of variable is 4 (k = 4),when α = 0.05, dL = 0.90, dU = 1.83, it can get the result:

dU<DW = 2.2624<4-dU

Judged by above results, the model does not exist first order positive autocorrelation coefficient. and determinants of coefficient is 0.99. Goodness of Fit is relatively high on the whole, F-value is very high which explains the overall explanatory power of explanatory variable is excellent and t-value of x1, x3 all manage to test in the level of 95% t-value of x2, x4 manage to test in the level of 80%. Therefore, it can conclude the value of parameter estimation is the initial parameter of trading volume temporarily.

Effective supply equation of real estate in Jiangsu province can be set up as follows:

(5)

From the viewpoint of parameter estimation, supply sample determinants of coefficient is 0.986,Goodness of Fit is high. F-value is 523.578, the whole estimation of model is good. T-value of all explanatory variable manage to test in the level of 99%. DW value shows the model does not exist first order autocorrelation coefficient. Therefore, it can conclude the value of parameter estimation is the initial parameter of trading volume temporarily.

Analysis of parameter estimation results: Conclusion can be gotten from parameter estimation results. (1) There is positive correlation among price of commercial housing, per capital disposable income of urban households, city population proportion and efficient demand of real estate market in Jiangsu province. There is negative correlation to gross domestic product. It explains that it strengthens the effective demand to commercial housing to some extent as average disposable income increase. which fit for economic demand theory. It accelerates the development of urbanization and also promote the effective demand of real estate market. While the growth of national economy does not obviously improve effective demand of real estate market, (2) The improvement of average price of commercial housing can promote the effective supply and demand quantity of real estate in Jiangsu province. Impact on effective supply quantity is apparent, since the unchangeable thesis to developer is to pursue profit and enlarge market. However, impact on effective demand seems to be against demand theorem which fully manifest large investment and speculation on real estate market. Namely sheep-flock effect in the real estate market and (3) Negative correction between effective supple and demand of real estate market and loan interest rate of financial institution shows that increase of loan interest rate pose pressure on effective supply of real estate market and it is feasible to regulate real estate market by interest rate.

DISEQUILIBRIUM DEGREE ESTIMATION

Effective supply and demand quantity of real estate in Jiangsu province and disequilibrium degree estimation: According to the above model, logarithm value of effective demand and supply quantity of real estate in Jiangsu province in each year can be gotten with explanatory variable. According to short edge rule, define DEM and SUP, respectively as effective demand quantity and effective supply quantity of real estate market in Jiangsu Province in a certain year. Q is stimulated trade volume, disequilibrium degree of housing market effective supply and demand is Z shows:

t means year. The result is seen in Table 4.

Table 4: Results on effective demand and supply and disequilibrium degree

Comparing effective demand and supply quantity of real estate in Jiangsu province from 1999-2009 with real trading volume, chart 15 can be gotten. According to the chart, can judge whether it exists irrational consumption.

Results analysis: The first stage, from 1990-1993. the 18th National congress of the CPC was held in 1992,which quickened reform of political system, promoted economical construction and real estate market. Effective supply volume exceed effective demand volume. Hence, disequilibrium index descended quickly and reached its lowest point in 1993 which led to the phenomena of supply exceeding demand serious.

The second stage, from 1994-1997. Government carried out the policy of macroscopic control pointing at inflation by overhead economy in the second half year in 1993. The key point was to adjust real estate industry. By releasing relative regulation, real estate industry was hit deeply. Supply in the market gradually decreased. Disequilibrium index in this period was positive value and effective supply quantity is more than effective demand quantity in the market.

The third stage, from 1998-1999. Export and consumption growth in china were influenced by Asia financial crisis in 1997. Fix assets investment became major factor to fuel economical growth. To better promote market economy, guide the development of real estate industry reasonably and effectively, government stopped welfare-oriented public housing allocation system which caused more investment in real estate, increased effective supply quantity quickly. Therefore, disequilibrium degree descended on end which reached its peak in 1999.

The fourth stage, from 2000 to now. Entering the new era, with high households savings, effective demand increasing in real estate market, national economy turned into buyer’s market from seller’s market and shortage of effective demand had relieved. Disequilibrium degree in the period was still negative value, but trend was comparatively smooth which showed that it became mature and rational comparing with previous volatility. It tended to balance in the 1997. In 2008 economical recession all over the world was triggered by international financial crisis. National economy situation experienced a sudden turn for the worst. To answer the serious situation, government increased the investment in fixed assets which made effective quantity increase in real estate market. Therefore, disequilibrium degree decreased quickly. In 2009 to answer financial crisis all over the world, government adapted loose monetary policy and active fiscal policy to stimulate consumption demand of commercial housing which caused the ascend of demand.

CONCLUSION

The study makes use of relevant statistics data of real estate from 1990-2009 in Jiangsu province with disequilibrium theory, establishes effective model of supply and demand of real estate market in Jiangsu province in the basis of hyperbole model. Through the model get effective supply quantity and demand quantity of real estate market from 1990-2009 in Jiangsu province, calculate disequilibrium degree. Empirical analysis shows that disequilibrium degree can reflect the fluctuation of real estate supply and demand in the period effectively and get the conclusion that the real estate in Jiangsu is influenced by average sales price of commercial housing, gross domestic product, per capital disposable income of urban households, process of city development and national macro-economy policy.

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