Down payment requirements and house prices: Quasi-experiment evidence from Shanghai

Using the regression discontinuity design, a quasi-experiment approach, this paper establishes a causal relationship between the down payment requirement and house prices by exploiting a unique institutional background in Shanghai. In the unique setting, the required minimal down payment ratio jumps at the Inner Ring, a circular elevated highway, from 50% to 70% for a large group of buyers. With transaction level data from the largest real estate broker in Shanghai, we find that a lower required down payment ratio increases the apartment price by 138.8 thousand RMB, around 3.71% of the average transaction price.