Macro-Finance Salon (No. 46): Enterprise Financialization, Real Estate and Economic Fluctuation
2016-12-24 IMI
Mr. Peng first analyzed the status quo and data on real estate. He looked into the relation between housing price and PPI in the U.S. When housing price deviates from PPI, there will be fluctuations in housing price. Fixed asset investment moves inversely to real estate investment. When fixed investment is favored, real estate investment will decrease. However, if the real economy worsens, companies will invest in other sectors to make profit, with most of the capital flowing into real estate market. He established a theoretical model to analyze factors that affect real estate market and enterprise financialization. Peng supposed that there are two kinds of investment in the economy, financial contracts and productive investment. Enterprises will invest in the one that generates the most profits. When financial contracts are highly profitable, enterprises will choose to invest in financial contracts, with most of the invented capital in real estate. Other factors that boom counter real estate market include households, retailers, monetary policies, capital producers, and real estate developers. Through calculation fitting, the model was found to be consistent with real situation. After analysing his model, Mr. Peng concluded that impact on real estate to a large extent results from consumption. Only 30% of the housing price change is caused by changes in the real economy. Lastly, based on China's national situation and his model, Peng provided several policy suggestion for the government.
In the Q&A session, audience raised questions about the counter-cyclical housing boom in China. Prof. Su pointed out that the rising housing price in recent years was caused by leverages in the household sector. He hoped that Mr. Peng’s thesis can based on China's real situation and analyzes factors that affect China's housing price in different stages so as to further improve his research.
