Is real estate considered a safe asset in East Asia?

ABSTRACT

The demand for safe assets has increased in recent years. However, the supply of safe assets has remained concentrated in a few Western developed countries, and it cannot meet the demand for safe assets in East Asia. For historical and cultural reasons, we believe that real estate serves as safe assets in East Asia. To verify this issue, this study employs two sets of data, which, respectively, include three East Asian countries and eight Western countries, from 1998 to 2019 to construct two panel vector autoregressive (PVAR) models that we use to determine the differences between the housing markets in East Asian and Western nations. The empirical results show that house prices in East Asia tend to increase with economic policy uncertainty (EPU), indicating that real estate is a good hedge against uncertainty. In Western countries, however, real estate does not hold its value well in times of uncertainty. Therefore, this study confirms that real estate is a safe asset in East Asia, but not in Western countries. To lower the excessive price of houses in East Asian countries, this study recommends increasing the supply of other safe assets.

KEYWORDS:

• Real estate
• safe assets
• East Asia
• house prices
• economic policy uncertainty

JEL CLASSIFICATION:

• E22
• G11
• G12

Disclosure statement

No potential conflict of interest was reported by the authors.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

¹ There are also other common determinants of housing price, such as interest rate and population. As these data are too little or incomplete, we did not add them to benchmark model, and instead used them to conduct robustness tests. See Appendix 1 for details.

² Logarithmic growth rate is computed as: $ln\left(x_t/x_{t-1}\right)\times 100$.

³ A robustness test was conducted by changing the order of variables. See Appendix 1 for details.

⁴ Akaike Information Criterion (AIC), Bayesian Information Criterion (BIC), and Hannan-Quinn Information Criterion (HQIC).

⁵ A robustness test was conducted by changing the lags of variables. See Appendix 1 for details.