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House prices in China increased at an average annual nominal rate of 11 percent in the last two decades to 2009.This increase in prices occurred during a period of rapid transition in ideology(from the plan to the market), in income, urban population and with concomitant changes in policies to manage the price boom.This paper uses the annual data from 29 provinces from 1998 to 2009 to decipher the contribution of market fundamentals vis-à-vis policies to house prices in China.Our findings show that market fundamentals of levels of income, construction costs, and marriages are the primary determinants of house prices, followed by statistically significant but quantitatively small negative effects of changes in real interests, land purchasing area and the housing stock.The VECM model shows the area of land under release for building and available stock of housing resulted in short-term dynamics of housing inflation.The half deviation of housing prices from fundamentals will spend 15 years to come back to the equilibrium.The housing policies matter most for short terms swings in the price level.For example, the introduction of land transfer method by "biding, auction and listing" in 2002 has played a great role in the rapid growth of housing prices afterwards.