This study analyzes the economic system dynamics of investment in real estate from mainly four participants in China. Local governments limit the supply of commercial and residential land to raise fiscal revenue, and expand debts by land mortgage to develop industrial zones and parks. Led by local government, banks and real estate development enterprises forge a coalition on real estate investment and facilitate real estate price appreciation. The above theoretical model is empirically evidenced with VAR (Vector Auto Regression) methodology. A panel VAR model shows that land leasing and real estate price appreciation positively affect local government general fiscal revenue. Additional VAR models find that bank credit in addition to private and foreign funds respectively have strong positive dynamic effects on housing prices. Housing prices also have a strong positive impact on speculation from private funds and hot money.

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