Cashing in on others' misfortune: Institutional investments in China's commercial property market in times of flooding crisis

Abstract

Flooding disasters have extensively disrupted productive activities, causing market uncertainties. However, how these uncertainties affect institutional investors' strategies in the commercial property market remains an underexplored question. To address the question, we provide a novel perspective by classifying flooding events into seasonal and climate change-induced (CCI) floods. Specifically, we conduct a spatial quasi-natural experiment to examine the treatment effect of seasonal and CCI floods on the commercial property market in Chinese cities from 2010 to 2018. We find that flooding disasters create a discount effect on property prices, which lures investors to flock into the market. However, institutional investors perform more cautiously in properties within CCI floodplains relative to counterparts within seasonal floodplains. In addition, local institutional investors benefit from higher discount premiums more than non-local institutional investors in floodplain markets, though this advantage diminishes in CCI floodplain markets. Our findings provide valuable implications for investors’ decision-making in flood-prone cities. Policymakers are encouraged to promote market information transparency and resilience-building initiatives to mitigate the adverse effects of flooding events on local economies.