Capitalization of legal title: Evidence from small-property-rights houses in Beijing

• Small-property-rights housing is one of the informal ways of providing housing units in Chinese cities.
• This study provides institutional framework for informality and empirically analyzes the value of legal title in urban China.
• The results show that a legal title is worth more than 45% of formal housing prices.
• It also finds that the value of a legal title tends to change across space and across housing physical characteristics.

Small-property-rights housing is one of informal ways of providing housing units in Chinese cities. Yet, there are still relatively few studies of informal settlements in China. This paper addresses that gap in the literature by tracing the source of informality in the context of the property rights system in China and empirically investigating the value of a legal title in urban China. It uses housing project data collected in Beijing and spatial econometric models to estimate the value of a legal title. The findings show that a legal title adds value to properties. Housing price falls by 45–60% if housing property does not have a legal title, after the physical and locational characteristics of the housing properties are controlled. It also finds that the value of a legal title tends to change across space and across housing physical characteristics.