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.