The short-term hedging effectiveness of Asian commercial real estate is questionable, the Asia Pacific Real Estate Association (APREA) said today. Announcing the conclusions of a report commissioned in 2010 on the capacity for Asian real estate to act as an inflation hedge, APREA said its findings were particularly relevant against a backdrop of rising inflation.
The association said that, over 10 years, Asian real estate assets do hedge inflation. The listed sectors of Hong Kong, Japan and Singapore headed APREA’s list of best hedging cities, showing the greatest correlation with inflation rates of the eight cities included in the research. The other cities were Beijing, Shanghai, Guangzhou and Bangkok.
Peter Mitchell, chief executive officer of APREA, said: “There is a lot of comment about real estate’s hedging capabilities but, at least in the Asian context, little empirical analysis. This is a very important body of work which will increase our understanding of the performance and characteristics of Asian real estate.”
The research also revealed a strong correlation between real estate returns and GDP growth in its selected cities but a weak correlation between real estate returns and stock market returns. This, APREA suggested, meant “Asian real estate, both listed and direct, is seen by investors as a distinct asset class, separate from equities, because of different performance characteristics.”
The research included work from global property services firm Richard Ellis, the ESSEC Business School in Singapore and Chung-An University in Seoul.