Do China or the US Macroeconomic Conditions Affect Asian Public Real Estate Markets?

Abstract

In retrospect of China’s increasing significance and active role in the global economy alongside with prominence in Asian economic growth, this paper investigates the relative impact of China’s and US’s macroeconomic factors on Asian real estate excess return performance. Although past literature covered extensively the influence of macroeconomic variables on the domestic stock markets, little had been done in the research of foreign macroeconomic factors on domestic real estate markets. This paper attempts to contribute along this direction. Using a set of 10 Asia-Pacific (APAC) and the US real estate market monthly excess returns, as well as several macroeconomic factors and economic policy uncertainty indices from January 1988 to April 2017, we implement multiple regression analysis, linear and nonlinear causality analysis and generalized impulse response functions to reach a robust conclusion. We find that there are insignificant correlations between China macroeconomic variables and APAC, as well as between the U.S macroeconomic variables and APAC real estate market excess returns in both the full and sub-period analysis. The observations would agree with the conventional wisdom that foreign macroeconomic factors have weaker correlations with the real estate returns, as compared to its domestic counterparts. Nevertheless, the US macroeconomic factors show stronger causal relationship with the APAC real estate excess returns during the full period analysis, while China macroeconomic variables have witnessed a stronger causal relationship in shorter sub-period analysis. Key macroeconomic variables such as Industrial Production Output Index, Long Term Interest Rates and Economic Policy Uncertainty had observed significant fluctuated responses for both US and China. Overall, it can be concluded from the study that the US economy continues to have a dominant influence in Asian real estate markets. However, during economic crises, the impact of China’s economy conclusively outweighs that of U.S. The key macroeconomic factors that are the most impactful include industrial output growth, long-term interest rate and economic policy uncertainty. Finally, the results reported in this paper might have portfolio and policy implications.