Property Rights Uncertainty, Prices, and Speculation: Evidence from China's Housing Market

We examine the causal effect of uncertainty in property rights on housing prices and speculative behavior. We take advantage of a distinctive setting in Shenzhen, China, where neighboring residential units that are otherwise similar differ in the strength of their property rights protections. Some units have full property rights (FPR) with a 70-year leasehold, whereas others have only limited property rights (LPR) protections. Using detailed listing data, we find that the sales market prices these protections, while the rental market does not. Our estimates imply that the perceived probability that FPR rights could be questioned at the end of the 70-year term is between 7% and 21%, and that the probability the LPR receives no legal protection in any future year exceeds 50%. We further show that LPR units are more susceptible to speculation, as reflected in higher turnover and greater price volatility. Lastly, we show that the public release of new urban planning codes raises listing prices and lowers turnover and price volatility for LPR properties relative to matched FPR units.