Research On The Inflation-Hedging Characteristic Of Real Estate In China

Inflation heavily influences the development of the economy and the society, so common people and scholars pay great attention to it. And the issues of real estate, since China's 1998 real estate reform, have become a focus of attention of the public and academic circles. Generally speaking, real estate is regarded as providing a good inflation hedge according to the traditional theory. However previous studies on the inflation-hedging characteristic of real estate have produced abundant results, but some results are even conflicting. Under the background of fluctuations in the general price level, whether it is a credible claim that the stability of the real estate market can make the economy running smoothly on the national level, and investment in real estate can be used as a hedging strategy effectively on the personal level? In order to explore this issue, a thorough study on the nflation-hedging characteristic of real estate in China has important theoretical value and practical significance.This paper is divided into five sections, with the combination of normative and empirical research methods. Part One makes a brief review of previous studies about inflation and real estate. Part Two has a theoretical analysis of the inflation-hedging mechanism which is mainly based on the traditional Fama-Schwert(1977) framework, and defines the connotation of real estate and inflation. Part Three introduces the history of the real estate market of China and the development of inflation in China in recent years. And it then briefly analyses the relationship between inflation and real estate prices in qualitative analysis. Part Four is the empirical analysis. In order to test the inflation-hedging characteristic of real estate in China, the PSTR(Panel Smooth Transition Regression) Model is employed with the data in 30 provinces in China(except Xizang) from 2000-2013. We select commercial house price and CPI as the main variables, and other factors from the supply, demand and funding that affect real estate prices as transition variables, such as completed area of real estate, the population of urban and the funding real estate enterprises get from home. The empirical results turn out to exhibit characteristic s that differ from those of previous studies. The study concluded that:(1) Real estate in China has inflation-hedging characteristic in a certain range, but with changes in the level of macroeconomic variable, the inflation-hedging characteristic differs in degree. Generally speaking, the real estate market more prosperous, such as the supply and the demand of real estate and real estate support funding more exuberant, the coefficient shows increasing trend.(2) The hedging characteristic against inflation of the real estate in China is nolinear. Overall, the coefficient can vary from negative to positive, and the absolute value of the overall coefficient is less than 1. In other words, China's real estate can not completely hedge the risk of inflation. Finally, Part5, based on the above study results, puts forward some suggestions for the development of the real estate market.