What Drives Up Land Price in China? Evidence from Bidding Processes of Land Auctions in Beijing

The land price in big cities draws much attention and discussion for its skyrocketing appreciation. Most researches are from the macro perspective due to data restriction. This paper aims to investigate the critical factors in the price formation process of a land auction, using the listing auction micro bidding-level data in Beijing from 2013 to 2018. We construct a model for the relationship between quitting price and land, bidder’s characteristics, housing market conditions and competitive intensity(including private and public signals), then we use OLS for identification. We find that competitive intensity increases the quitting price by causing competition and interaction between bidders.More importantly, we find evidence of cheating behavior in the land market. Results show that bidders have higher quitting prices when they are in a joint venture, and when a central SOE developer or a top 10 developer exist in the joint venture. We also find different behavior of developers in the short run and long run. Our research contributes to the literature of land auctions by analyzing the price formation process and developers’ behavior. We also provide supporting evidence for the government to make adjustments of the auction system and identify the cheating developers.