DO CHANGES IN CHINA'S MACROECONOMIC CONDITIONS INFLUENCE ASIA PACIFIC REAL ESTATE MARKET EXCESS RETURNS?

Abstract

In the recent years, the emergence of China as the next global economic superpower had garnered significant attention among economists and investors alike. Alongside with the economic growth of Asia Pacific (APAC) region, there is a vast amount of existing literature on the impacts of domestic and foreign macroeconomic factors on the stock markets. However, little has been done to examine the effects of these factors on foreign real estate capital markets. Using U.S. macroeconomic variables for comparative analysis, this study seeks to investigate on the influence of China macroeconomic factors on APAC real estate market excess returns. By using linear regression, causality tests and impulse response functions, the correlation, causal relationship and the individual response of real estate returns from macroeconomic shocks are examined respectively. The findings reveal that while U.S. continues to have a dominant influence on APAC region, the impact of China macroeconomic factors is not negligible, albeit much weaker than the US. Although the level of impact varies from each macroeconomic factor and real estate market, the overall results shed light on how regional institutional investors and policymakers can better understand the effects of macroeconomic changes on APAC real estate markets. As such, this paper fulfils the objective of contributing to the growing literature of the impact of macroeconomic factors on real estate capital markets.