INFLATION-HEDGING CHARACTERISTICS OF PROPERTY AND NON-PROPERTY ASSETS IN SINGAPORE

Abstract

Real estate, especially private real estate, has always been a much coveted asset in Singapore. It is not just a space for living, but rather, a symbol of affluence and an asset that is believed to be a good hedge against inflation. As such, real estate has received increasing attention as an alternative to other investments. However, no studies have yet attempted to make a detailed comparison between property and non-property assets to determine which assets are better hedges against inflation. This study aims to determine empirically the inflation-hedging abilities and characteristics of direct property (all-property, residential property, commercial property, i.e., shops and offices and industrial property); indirect property (property stocks); common stocks and government short-term bonds (3-month treasury bills) against observed, expected and unexpected inflation over a period of 21 years from 1978 to 1998. The study period is further divided into 5-yearly sub-periods and high and low inflation sub-periods to provide a more in-depth analysis. These are done through correlation analysis and multiple regression analysis. The results showed that when compared with direct property, indirect property, common stocks and government treasury bills, industrial property is the best hedge against inflation, followed by shops. In terms of the inflation-hedging effectiveness of stocks, property stocks performed better than the stock market as a whole. Thus, the findings support the hypothesis that real estate in Singapore is generally a better hedge against inflation than the other assets.