Online Journal | Yemao Jia and Ruoyu Men | January 2024
Abstract
This study examines the factors influencing land transaction prices in Beijing from 2018 to the present, using data from the GIS Pro online database. Focusing on variables like Total Gross Floor Space, Floor Area Ratio, Land Area, and Distance from Tiananmen Square, we employed linear and random forest regression models to analyze their impact. The findings highlight Total Gross Floor Space and Distance as the most significant determinants of land prices, overshadowing other factors. While acknowledging limitations such as the exclusion of socio-economic elements, this research provides crucial insights for urban planning in Beijing and other developing inland cities in China, aiding in policy formulation and sustainable urban development.
Introduction
As the capital city of China, Beijing stands as a paradigm of an advanced, international metropolis. Its real estate market is notably prominent, with housing prices at their peak even surpassing those in Midtown Manhattan, reflecting its significant status in the global real estate arena (Hui and Chan 3). Unique in its urban layout, Beijing is a quintessential inland city, radiating from a central core that hosts landmark structures like the Forbidden City and Tiananmen Square. Despite its development, Beijing continues to evolve, particularly in its suburbs, which offer substantial scope for further urban expansion (Wu et al. 102).
This study aims to delve into Beijing’s land market dynamics, crucial for understanding China’s urban development trajectory. Beijing’s substantial permanent and migratory populations add layers of complexity to its socio-economic structure (Zhang 45). The outskirts of Beijing, with vast tracts of land still available for development, present a potential model for land sale and urban planning strategies applicable to other developing inland cities in China. Land sale is a critical revenue stream for local governments in China, making the study of Beijing’s land market imperative for informing land pricing and policy decisions (Wu et al. 119). Such insights are not only pivotal for Beijing’s sustainable development but also offer valuable lessons for other similar urban centers in China.
Methodology
Data Collection and Preliminary Observations
This study commenced with the collection of detailed land transaction records in Beijing from 2018 to the present, sourced from the GIS Pro online database. An initial visualization of this data revealed a key trend: lands located farther from the city center generally had lower prices compared to those closer to the center. This observation laid the groundwork for further quantitative analysis.
Selection of Variables and Their Anticipated Impact
To delve into the potential factors affecting land transaction prices, we selected several key variables for our study: Total gross floor space, Floor area ratio, Land Area, and Distance (defined as the straight-line distance from the land location to the iconic landmark of Tiananmen Square in central Beijing). These variables were hypothesized to influence the land transaction prices in varying ways.
Bivariate Correlation Analysis
In the initial data exploration phase, a pairwise correlation analysis was conducted for the variables. For instance, a significant negative correlation of -0.5 was observed between Distance and transaction amount, indicating that prices tend to decrease as distance from the city center increases. Conversely, a correlation coefficient of 0.56 between Total gross floor space and transaction amount suggested a positive relationship, implying that larger built areas might correspond to higher land values. Additionally, a strong positive correlation of 0.83 was noted between Total gross floor space and Land Area, indicating a potential interrelation in land valuation.
Application of Multivariate Regression Analysis
Considering the complexity and variability in a multivariate context, we decided to employ two different regression analysis methods: linear regression and random forest regression. This choice was motivated by concerns over the potential limitations of linear regression in handling multivariate scenarios, such as excessive variance. We aimed to enhance our understanding of the data and validate the robustness of our analysis through these diverse methodologies. In this process, the variables Total gross floor space, Floor area ratio, Land Area, and Distance were collectively applied in the models to comprehensively assess and decipher their collective impact on land transaction prices.
Comprehensive Objective of the Methodology
The core objective of this section of the study is to utilize multivariate statistical analysis techniques to explore and identify key factors influencing land transaction prices in Beijing. By conducting a comprehensive analysis of the interactions between different variables, this study aims to provide more thorough and insightful understanding of the dynamics in the land market.
Results
In our study, we utilized an Ordinary Least Squares (OLS) regression model to analyze the impact of various variables on real estate transaction amounts, measured in billions of Chinese Yuan. This statistical approach was chosen for its efficacy in estimating the influence of multiple independent variables on a single dependent variable. Our findings from the OLS model, combined with the calculated importances of each variable, provide a comprehensive view of the dynamics in real estate transactions.
The OLS model demonstrated a substantial fit, with an R-squared value of 0.612, indicating that about 61.2% of the variability in transaction amounts is explained by the included variables. The Adjusted R-squared value, at 0.603, further affirms the model’s effectiveness.
In examining specific variables, we observed that the total gross floor space has the highest importance (0.487505) and is significantly positively correlated with transaction amounts. This suggests that larger floor areas typically equate to higher transaction values, a finding that is intuitive in the context of real estate markets.
The second most significant factor, as per our analysis, is Distance (Kilometers), with an importance of 0.350069. This finding is critical, as it indicates a significant negative correlation between distance and transaction amounts. Properties closer to city centers or key locations tend to have higher transaction values, reflecting the premium placed on location in real estate valuation.
Though less impactful, Floor area ratio and Land Area still hold some degree of influence, with importances of 0.093185 and 0.069241, respectively. While these factors are overshadowed by total gross floor space and distance, they do contribute to the overall dynamics of real estate transactions.
It is noteworthy that our model exhibited a very high condition number, hinting at the potential issue of strong multicollinearity. This suggests that the independent variables in our model might be highly correlated, potentially affecting the accuracy and stability of our model’s estimations. Therefore, optimizing the model to mitigate the effects of multicollinearity will be important in future research.
Discussion
This study’s findings reveal that Total Gross Floor Space and Distance are predominant factors in determining land transaction prices in Beijing, with importance scores of 0.487505 and 0.350069, respectively. This highlights the significant influence of these variables on the real estate market. However, it’s crucial to acknowledge the elements not encompassed by our model.
Critical factors such as proximity to transportation networks, notably metro stations, could substantially influence land values. The prices of nearby developed properties, local crime rates, the presence of esteemed educational institutions, and the availability of public amenities also play essential roles. For instance, a plot designated for a luxury office tower or upscale residential complex is likely to fetch a different price than land intended for a public park. Similarly, regions with higher crime rates might experience a reduction in land value.
Considering the long-term perspective, our model exhibits limitations, particularly in not accounting for economic variables like inflation or policy shifts. While inflation’s impact may be negligible over a five-year span, it becomes a critical factor in longer durations, such as a century. Future users of this model should not overlook the incorporation of inflation, which, though not overly complex, is vital for maintaining accuracy.
The practical significance of this model is substantial, especially for real estate developers and government authorities in Beijing. As the city continues to develop and expand, many lands await development. This model assists in estimating the value of these lands within a reasonable range, crucial for urban planning and development.
Furthermore, the model’s applicability extends to other developing inland cities in China, such as Xi’an, Chengdu, and Wuhan. These cities share similar developmental patterns and urban planning challenges and can benefit from the insights provided by our study.
Linking to the Introduction
As delineated in the introduction, Beijing’s unique position as an advanced, international metropolis with a complex real estate market makes it an exemplary case study (Hui and Chan 3; Wu et al. 102). This research provides critical insights for understanding the dynamics of Beijing’s land market and offers a model adaptable to other developing inland cities in China. The findings are instrumental for local governments in formulating land pricing and policy decisions, contributing to the sustainable development of these urban centers (Zhang 45; Wu et al. 119).
Conclusion
In wrapping up this exploration into Beijing’s land transaction prices, what stands out is how certain factors – specifically, Total Gross Floor Space and Distance from the city center – play such crucial roles. Our journey through the data, with the help of linear and random forest regression models, highlighted these variables as key players, each carrying significant weight in determining land values.
But it’s not just about numbers and statistics. This study opens up a broader conversation about what shapes the landscape of a bustling metropolis like Beijing. While we’ve pinpointed some major factors, there’s a world of other elements – like the ease of catching a subway or the quality of nearby schools – that also mold the city’s real estate heartbeat. These are the pieces of the urban puzzle that didn’t quite fit into our model, yet they are undoubtedly part of the story.
We also have to consider how the passage of time changes the game. Elements like inflation or shifts in government policy, which we didn’t focus on this time, could add new layers to our understanding if we look at this over decades instead of just a few years.
For the here and now, though, our findings offer valuable insights, especially for those who are shaping Beijing’s future – the city planners, the builders, the policy makers. As they chart the course for Beijing’s ongoing expansion, knowledge about what drives land prices becomes a key tool in their kit.
In essence, this research is more than a deep dive into Beijing’s real estate market. It’s a lens through which we can view other similar cities across China, offering a framework that can inform decisions and foster sustainable urban growth.
So, as we close this chapter, we’re not just leaving with answers about Beijing’s land market. We’re also opening doors to new questions and possibilities for cities on the rise, laying groundwork that extends far beyond the borders of one city.
REFERENCE
Hui, Edward C.M., and Ivis Chan. “Foreign investment and real estate price in China.” Journal of Asian Real Estate Society, vol. 1, no. 1, 1998, pp. 1-15.
Wu, Fulong, et al. “Urban Development in Post-Reform China: State, Market, and Space.” Routledge, 2007.
Zhang, Li. “In Search of Paradise: Middle-Class Living in a Chinese Metropolis.” Cornell University Press, 2010.
ACKNOWLEDGEMENT
I extend my heartfelt gratitude to my dear friend Men Ruoyu for his substantial support and assistance throughout this research. His contributions were not just technical, aiding significantly in the optimization of our model and in coding, but also emotional, providing immense moral support during the most challenging phases of this journey. Men Ruoyu’s guidance and encouragement were invaluable, especially when I found myself at crossroads, filled with doubts and uncertainties.
I would also like to express my appreciation to ChatGPT for its assistance in language editing and polishing of this manuscript. The input from this advanced AI tool was crucial in refining the language and ensuring the clarity of my research presentation.