Judicial auction housing discounts and housing segments interaction: Evidence from China

Abstract

The urban resale housing market has seen an increasing influence from the judicial auction housing segment. This study delves into judicial auction housing discounts and the underpinning mechanisms from the standpoint of buyer risk preference and market interplay. Transaction data from 11 prominent cities in China, spanning July 2017 to October 2020, were analyzed. Principal empirical outcomes suggest an average economic depreciation for China's judicial auction housing market of approximately 14%, corroborated by our neighbor-matched sample. Key findings suggest a substitution effect between the judicial auction and regular resale segments and highlight the significance of purchasing risk as a determinant for this channel. Moreover, an increase in uncertainty about the overall market environment could intensify demand flowing out of the judicial auction market as well as its economic depreciation. The results offer insightful implications for policy designers, emphasizing the enhancement of judicial auction housing quality and the need for improving transparency of information in the resale housing market.