Inflation and housing market in Shanghai

Abstract

Purpose -This paper sets out to examine the inflation-hedging ability of housing properties in Shanghai. Design/methodology/approach -This paper examines both the short-term and long-term hedging characteristics of Shanghai residential properties against three types of inflation: actual, expected, and unexpected in the test period of 1997-2005 by using the OLS model. Two methods, the Autoregressive Integrated Moving Average (ARIMA) and the Hedrick-Prescott Filter, are used to estimate the expected inflation. Findings -The results show that, while the Shanghai housing property market does not provide a hedge against actual expected and unexpected inflation during the period, a positive real rate of return is reported in all cases. Research limitations/implications -Data limitations are due to lack of complete market transaction records and it is necessary to rely on property indices produced by the private-sector firms as a proxy for market movements. Originality/value -The paper shows that government policy in this market is still a dominant factor affecting the rate of return and it has therefore implications for the construction of an efficient investment portfolio by institutional investors.

Rethinking the Relationship Between Housing Prices and Inflation: New Evidence From 29 Large Cities in China

“…Other research show that there is no cointegrated relationship between housing prices and inflation. For instance, Li and Ge (2008) insisted there was no relationship between real estate and inflation. Glascock, Feng, Fan, and Bao (2010) found that the Hong Kong housing property market did not provide a hedge against actual, expected and unexpected inflation during the period of 1997-2005 by using the OLS model.…”

Can housing investment hedge against inflation?

“…By dividing the inflation rate into high and low regimes, they found evidence that housing yields can only counteract inflation when the inflation rate is above the threshold value of 0.83%, while Fang et al (2008) find that housing investment is unable to hedge against inflation in Taiwan in the short run. Li and Ge (2008) provide evidence that Shanghai residential is unable to hedge in the short run, but partial hedge in long run.…”

“…Barkham et al (1996) find a long-run equilibrium between house prices with actual and expected inflation. Hamelink and Hoesli (1996), Li and Ge (2008) and Amonhaemanon et al (2014) find a negligible relationship between HR and expected and unexpected inflation, suggesting that housing is not likely to hedge against inflation in the short run. Wu and Pandey (2012) argue that residential real estate provides a moderate hedge against expected and unexpected inflation after accounting for economic downturns, housing market bubbles and stock market price increases.…”

“…However, there are also many empirical studies showing that there is a negative relationship between HR and inflation rates. Hamelink and Hoesli (1996), Li and Ge (2008) and Amonhaemanon et al (2014) find a negligible relationship between HR and expected and unexpected inflation, suggesting that housing investment is unable to hedge against inflation in the short run.…”

Revealing the Investment Value of Penang Heritage Properties

“…Based on past studies, property investment had been used to hedge against the inflation of a particular country. The property types included residential (Li and Ge, 2008;Lee, 2014), commercial (Limmack and Ward, 1988;Newell, 1996;Fraser, Leishman and Tarbert, 2002;Leung, 2010) and industrial (Tarbert, 1996). Therefore, most of the investors preferred to invest in such properties in order to diversify the risk of investment.…”