Price spillover effects of expanding the application of home purchase restriction to juridical sales in China

This study examines the impacts of the policy that expands the application of housing purchase restriction to juridical home sales (JHPR, hereafter) on resale market housing prices. Applying a matched dataset composed of housing transactions through juridical sales and resale housing listings in Hangzhou, we have two main findings. First, the JHPR policy significantly reduces liquidity in juridical home sales, which exerts negative spillovers on neighbouring resale homes, evidenced by the fact that each additional juridical home sale contributes to a further 0.3% to 0.6% decrease in nearby resale home prices after the policy. Second, after controlling for vacancy externality, we disentangle the substitution effect and the price signal effect as two channels of the spillovers. This article highlights the importance of preserving liquidity in juridical home sales to mitigate negative spillovers.