Several studies have been carried out on the supply side efficiency of Chinese real estate market using two analytical methods i.e.; method of index analysis and the frontal analysis. The index analysis method can be used to examine market efficiency if the correct indexes of real estate as well as financial analysis are deployed. (Lee et al., 2012) examined the dynamic efficiency value of the real estate market by using the index futures. Also, (Kopczuk & Munroe, 2015) centered their study on the transfer taxes in the New York and New Jersey housing markets, and from their results, they made a conclusion that hefty transfer tax on luxury homes reduces the efficiency of the market. However, this method of index analysis to evaluate real estate efficiency as (Yeh, 1996) suggested that they incur some randomness in their process of index selection meaning the challenges of correlation as well as collinearity between the indexes proves impossible to solve which definitely will bring erroneous analysis results.
Farrell proposed the frontal analysis method in 1957 suggesting to measure efficiency with construction of the production-possibility frontier (PPF) (Farrell, 1957). The frontal analysis method is made up of two categories namely; the parametric and nonparametric methods (Granderson & Linvill, 1998). For instance, the stochastic frontier analysis (SFA) is extensively used in the academic papers while examining the real estate market efficiencies. The SFA method is preferred because it takes into consideration other random factors such a luck and weather in the output result making the efficiency output more credible and accurate. Though, using the SFA method while doing evaluation needs one to make assumptions such as the inefficient items should always adhere to the half-normal distribution which in most cases introduces a certain degree of an error in the efficiency evaluation in the actual analysis (Kumbhakar et al., 2012). Moreover, there is always a precondition of obtaining mathematical functions while using the SFA method while conducting efficiency evaluation. But when faced with the case of Chinese real estate market it is difficult to derive the mathematical function since this is a market with several inputs and outputs factors making it impossible to find a particular expression to get do the calculation (Leone & Ravishankar, 2017). While the method was successful in calculating real estate market in other countries, it has its own inefficiencies which makes the method not widely applicable in all regions. Hence, frontal analysis method with its categories cannot be used in our study since it is known to bring errors especially with the Chinese real estate market.
Charnes et al., (1978) made profound progress and great contribution in the field of market analysis following his introduction of the data development analysis (DEA) model in 1978. His method is the most commonly used as a nonparametric method in most current market analysis studies. When compared with the parametric method, the data development analysis does not require considerations of the particular form of production frontier or setting up a weight of each index as a precondition to the analysis. Besides, this method is not affected by any variable of factors. Thus, in the real estate market, this method is the most adopted and accepted for efficiency evaluations. For example, in one practical study, (Wang, 2005) designed a knowledge decision model using the data envelopment analysis in measuring the performance of government real estate investment. The system contained the 4 frequently used DEA models i.e. CCR, BCC, FDH and SBM, and it was realized that the method can help governments in calculating or evaluating various indexes related to real estate investment such as the input redundancy and returns to scale. However, the issue common with the DEA is the efficiency of many provinces hits their maximum levels concurrently. But (Wei at al. 2011) managed this issue by adopting the super-efficient DEA in evaluating the efficiency of Chinese real estate investment and they made a conclusion that there are disparities in efficiency of real estate investment across China ("Study on the Performance Evaluation of Real Estate Investment Trusts Based on Super-Efficiency DEA", 2012). Most of the investments are concentrated in the southeastern coastal regions as well as the northwestern regions thus the high efficiency values from these two regions as compared to other regions. This method can be used to calculate the efficiency in China real estate but it is not in line with out study of studying the impact of supply-side reforms in Chinese real estate where we will use the ordinary least square method.
A study by Wu (2018) stipulate that the current supply-side reforms taking place in China have foster new growth patterns which have significant impacts on major economic sectors like the real estate industry. According to these scholars, supply-side structural reforms in China have created new opportunities for the real estate industry as a whole. One opportunity is the increase in the economic class of people throughout the country by reducing unemployment. For a very long time, increased employment reduce poverty and dependence of people in the government to provide various social amenities. Moreover, employment leads to higher average income of people enabling them to have more purchasing power. In this study the author explained, the more people get employed and their incomes improves, they begin to invest in sectors like real estate a fact that have since this sector to rise since 2015 when the Chinese government implemented the supply-side structural reforms (Wu, 2018). Economic growth of people of people within the society further benefits the economy in that it encourages consumers to consume more products and services leading to better standards of living. Better standards of living enable the entire country to experience a rise in the life expectancy. Wu (2018) in this study further explain that when people ae assured that they will live for longer period, they tend to find more permanent residential place compared to when country is faced have low life expectancy. As a result, many Chinese people are increasingly seeking more permanent homes compared to the past years. This has led to higher demands of the real estate products in the resent years.Li, Ma and Zhang (2019) in their study also stipulated that the current supply-side structural adopted by the Chinese government has led to the growth of small and medium businesses. This study assert that supply-side structural since 2015 aimed at lowering costs for businesses. Low cost of business made it possible for the many small and medium business enterprises to improve their operation by expanding into new market. Low costs of business operations enable an organization to improve its work flow by channeling the funds which would have been used in covering costs into improving its products (Li, Ma and Zhang, 2019). Other firms will take advantage of such opportunities to provide use the fund to increase the level of technology within the company so as to bring efficiency. Consequently, most small and medium businesses began to record higher growth thereby opening new opportunities to the owners. Higher return from the business means that the entrepreneurs have improved purchasing power. Many of the business owner according to Li, Ma and Zhang (2019) since the beginning of the implementation of supply-side structural in Chin have expanded their investment into the real estate enabling the growth of this sector.
The other impact of policy-side structure reforms is the increased expansion of the real estate industry. According to Liu (2017), the new changes have enabled the real estate sector to expand and invest in new capacity. The leading cause of the increased investments in this region is the removal of the unnecessary red tape in business as well as the performance of the real estate industry as a whole. They are reducing red tape together with various levels of bureaucracy, limits firms’ operation costs while encouraging a conducive environment to support the growth of businesses. Chen, Cai, and Zheng (2020), in their study, explain that China's business environment is one of the most productive environments as a result of very few unnecessary red tapes. Consequently, a lot of local, national, and international business corporations have been encouraged to set up their operation in this country. Liu (2017) gives an example of the real estate as one of the primary sectors which have been impacted by the introduction of the supply side-structural reforms in this country. Thee scholars explain that unlike in the past decades when China's real estate sector had problems with the low land-use efficiencies due to various unnecessary red tapes, the introduction of supply-side structural reforms has enabled it to expand its market to other regions like the south-eastern coastal areas. It is no longer a crime for the real estate companies to set up their operations in any part of the country.
Guo, Kai, and Ma (2019), in their study, revealed that due to the removal of various unnecessary trade barriers and policies, the number of foreign real estate companies coming to partner with the local Chinese real estate firms has increased since 2015. As a result, some of the regions in this country that suffer low supply-side of the real estate efficiency have seen a significant improvement. Liao (2016) noted that the establishment of international real estate companies such as; Minoas Estate –Real, Elizabeth Estate Agency, Euroland Crete among others in China real estate market have increased competition as well as brought new patterns, styles among other things that have continuously revolutionized the entire industry. Guo, Kai, and Ma (2019) expanded their arguments to show how the removal of the additional business policies and restrictions has impacted the operations of the international real estate companies and how it has also affected the activities of the Chinese local and national real estate. Their first argument is that the removal of the trade barriers and policies through the institutions of the new supply-side structural reforms is has helped local Chinese real estate companies to lower their administration costs. Guo, Kai, and Ma (2019), in their study, found out that higher numbers of policy barriers in a particular market bring additional cost the organization, particularly when an organization is required to continually pay some of the amounts of funds to be allowed to operate in the region. Worse still, specific policy barriers need foreign and local organizations to have local content in real estate products. Some of such requirements bring additional costs to the organization, thereby making it hard to expand their investment to various parts of the country. However, with the implementation of supply-side structural reforms, China's small and large real estate companies have recorded higher profits due to reduced costs due to unnecessary trade barriers.
According to Dong (2017), about the recent trend in Chinese real estate, there is a sharp decline of residential apartments in tier two and tier three cities, which changed the situation of severe oversupply before 2016. This situation was brought about by the implementation of supply-side structural reforms in this country. Several specific policies dealing with property restriction in big cities and encouragement of system in smaller towns, such as reducing the transaction taxes, offering discounted mortgage, and providing funds to construct a new building, were introduced. Consequently, small and medium reals estate organization recorded an increase in profits since there were reduced due to the eliminations of the individual taxes that were acting as barriers to these organizations. Similarly, according to the Economist Intelligence Unit (2017), inventories of apartments in lower tie cities reduced rapidly, and the migrants began to flow into the inland region instead of eastern coast developed cities. The priority for the policy of the reform will continue to focus on encouraging non-speculative demand for housing across lower-tier cities. The new residential construction area began to exceed the commercial housing sales area, which signs the real estate market has gradually shifted back into the process of inventory rebuilding. According to the recently issued restrictions on different cities, it can be speculated that the future real estate will be restricted on both purchase and sale to freeze market liquidity.
Throughout history, people from one country to another in search of job opportunities and education have helped many countries to have relatively cheaper labour compared to when the locals of the nation are used. Such are the impacts that have been brought by the introduction of supply-side structural reforms. Faulkner (2016), in their study, established that in the recent past, China had increased the number of immigrants getting to its borders in search of education as well as jobs. Free-movements of labour in this country have enabled it to fill labour shortages, especially the menial workers required in the building and construction of the real estate products. Li and Chiang (2012) assert that liberal immigration policies adopted by the Chinese real estate as a result of the implementation of the supply-side structural reforms by the national government have made labour markets flexible, making this sector record economic booms in the recent past. Lisheng, Christensen, and Painter (2010) add that the increased access to relatively cheap labour has enabled most of the local real estate companies to keep up with the continuously growing demands. This further helps in preventing wage inflation as well as allowing companies in this market to increase their productive capacities.Guo, Hao, and Ren (2014), in their study, established that the core of supply-side structural reform is to transform the model of economic growth from relying on the input to total factor productivity. In order to achieve such objective, the supply-side structural reforms had to develop various interventionists’ supply-side policies that would significantly impact the overall economic growth of the country and, in return, impact major commercial sectors like real estate. Zhang and Pearlman (2018) explain that one of the interventionist supply-side policies that have been brought by new reforms is increased education and training. Bette education is one factor that is believed will continuously improve the labour productivity of the people in China, and this will significantly influence the success of the entire real estate sector. Therefore, through the government's subsidizing of education, this sector is assured continuous growth since many since graduation will always fill vacancies as well as develop new technologies, styles, and patterns, among other things that will be used to improve the operations of the entire region. The separate interventionist policy that has been brought about by the implementations of the supply-side structural reform is the improvement of transport and infrastructure as a whole. The transport system has a significant impact on the developments and growth of the real estate industry. According to Sheng Han (2015), without proper infrastructure system development, most real estate activities cannot take place. These scientists went further to explain that building and constructing different real estate products requires transportations of raw material and people from various sources. In addition, Dong (2017) asserts that the success of the real estate industry depends on its accessibility. If an area is inaccessible, many people will shy away from living in such regions. Consequently, the number of people who rely on renting or buying houses in such a part will be low, thereby affecting the development and success of this industry.
On the same note, Chen, Cai, and Zheng (2020) explain that another impact of supply-side structural forms on the interventionist policies is the continuous support of the government to the real estate sector to build more affordable homes to the citizens. They further state that through the implementation of the supply-side structural forms, the government has made it easier for the real estate firms to build a wide range of houses to suit different people based on economic class. This brings an opportunity to the real estate sector because it is given a chance to invest in both high and low-end places where there are differences in the demands of houses. As an organization in this sector has an opportunity to attract both small class and upper-class individuals to buy or invest with them, thereby ensuring that they get a high number of returns at the end. In this study, the authors use a descriptive survey questionnaire to establish how the government moved by to support building affordable homes (Chen, Cai, and Zheng, 2020). 30 Chines real estate organizations were interviewed. The date was then analysed using SPSS and tests through the r-test. This study found out that the more the government, through the implementations of supply-side structural reforms, supports the building of affordable houses, the high the demand for the real estate (Chen, Cai, and Zheng, 2020). Therefore, the introduction of the supply-side structural reforms has helped the real estate sector to enhance its profits and returns in the short and long run.
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