CONTRARIAN REAL ESTATE INVESTMENT IN CHINA AND SINGAPORE

Abstract

Most empirical studies based on aggregate property market data have since concluded the superiority of value property portfolio over growth property portfolio but few were based on the use of specific asset based data. This study is based upon empirical data of specific properties from Shanghai Office (1998Q1-2009Q3), Shanghai Residential (1994Q1-2009Q3) and Singapore Residential (1998Q1-2009Q2). It aims to unravel whether time varying risk can be a possible explanation for the superiority of value property portfolios. Value and growth portfolios are established in order to test for their return performance and value premium observed are found to be statistically significant across all holding periods. In order to allow for heteroskedasticity in the error of the CAPM, GARCH(1,1) model is used to examine the time-varying risk of value and growth portfolios. This paper also used non parametric stochastic dominance test to substantiate the relative performance and risk for the value and growth portfolios. The results from the risk based analysis indicate that time-varying risk alone cannot explain the value premiums observed for Shanghai Office, Shanghai Residential and Singapore Residential portfolio. However, the results from stochastic dominance test suggest that investors in Shanghai Office and Residential market can substantially improve their portfolio returns by investing in value properties and investors in Singapore Residential market can do the same by investing in growth properties.