Consumer investment preferences and the Chinese real estate market

This paper aims to investigate the relationships between several macro‐economic indicators and real estate investment in China.

This study proposes the “investment preference theory” to explain that bank deposits, stock investment and real estate investment are three important investment vehicles to Chinese households.

The authors find that interest rate, an important monetary aggregate indicator – M2 – and the size of new equity offering are negatively related to real estate investment, which may imply that Chinese investors would prefer to channel their funds to stock market and high‐interest‐rate‐bearing bank deposits to keep a good balance between risk and high return on investment while higher interest rate also increases the cost of borrowing for the property buyers.

This is one of the first studies which investigated the connections behind Chinese consumers' real estate investment and empirically tested the choices among bank deposit, stock and property investment. This study hopefully deepens the understanding towards the consumer investment behaviors in housing investment decisions.