Semiparametric Estimation of Land Value in an Emerging Market: The Case of Beijing

Since the urban land reform in late 1980s, the land and property market have been gradually established in China. Despite of a fast growing literature on this emerging market, quantitative analysis of the land value determination mechanism has been scarce. Using a unique data set of land sales in Beijing from 2005 to 2006, this paper presents a comprehensive quantitative investigation of the land market in China. We aim to discover whether there is an effective land market at work. Hedonic price modelling technique is adopted to analyze the determining factors of land value in Beijing. We take into account the factors of location, parcel size, planning constraints, social and economics characteristics of the neighbourhood, as well as the characteristics of the buyers. A semi parametric model using a kernel core is utilized, by which the land value is allowed to change nonlinearly and non-monotonically with parcel size. Our analysis yields encouraging findings. The land value in Beijing is determined by size, planning uses, location and other neighbourhood characteristics. This agrees with the urban economic theories and empirical findings from other jurisdiction, and hence suggests that the land market in China is maturing. On the other hand, the land price is also found to be associated with buyer characteristics. Foreign invested companies pay more for land parcels on average, everything else given equal. Our empirical findings suggest that the land price in Beijing is significantly influenced by social, economic and political factors.