Investment Dynamics of the Greater China Securitized Real Estate Markets
Liow, Kim Hiang, Newell, Graeme, The Journal of Real Estate Research
Abstract This paper focuses on securitized real estate markets. It investigates simultaneously the effects of volatility spillover and conditional correlation on the cross-market relationships among three real estate securities markets, Mainland China, Hong Kong, and Taiwan in Greater China (GC), as well as their international links with the securitized real estate markets in the United States over 1995-2009. Overall, the results indicate that the three GC markets are integrated among themselves, as well as with the U.S. markets. The conditional correlations between the GC markets have outweighed their conditional correlations with the U.S. market, indicating closer integration between the GC markets due to geographical proximity and closer economic links. Moreover, higher levels of volatility spillovers and correlations are detected across all markets during the 2007 global financial crisis period. Finally, the orthogonalized real estate results indicate that unsecuritized real estate could behave differently from real estate securities in volatility interdependence and correlation relationship across the four economies.
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This paper analyzes the investment dynamics of the Greater China (GC) securitized real estate markets: Mainland China, Hong Kong, and Taiwan. It also examines their volatility spillovers and time-varying correlations with those of the United States, the world's largest and most transparent securitized real estate market, over the fifteen-year period from 1995 to 2009. With continuing strong economic growth, massive urbanization, and the growth of private real estate ownership in China, the scope for Hong Kong's real estate investment trusts (REITs) to provide more pure-play property investment opportunities in China, as well as Taiwan's growing economic ties with the Chinese mainland, the GC region will grow into an important player in the global financial markets (Johansson and Ljungwall, 2009), with their direct real estate and securitized real estate markets attracting the interest of domestic and international investors. A second and related issue of interest is whether the U.S. subprime financial turmoil has actually had any tangible effects on the identified cross-market relationships between the U.S. and GC markets (i.e., whether the subprime turmoil events in the U.S. can have significant impacts on the GC real estate securities markets).
The three GC real estate securities markets examined in this study are quite different in terms of their macroeconomic conditions, degree of market openness, informational transparency, legal system, size, and maturity level, as well as levels of government intervention on the real estate market.1 Real estate is one of the biggest recipients of foreign direct investment in China (Fung, Huang, Liu, and Shen, 2006). Fung, Huang, Liu, and Shen (2006) note that real estate in China has been owned and managed by the government under the socialist centralplanning economic regime before 1988. Consequent to the 1988 Constitutional Amendments that separated the land ownership and land use rights, one primary difference of real estate in China from that in the U.S. and other Western developed economies is that real estate refers to only land use rights plus the ownership of the improvements on the land. The state is still the nominal owner of all land. Although Hong Kong has been a special administrative region of China since 1 July 1997, Hong Kong's institutional system is similar to that of the United Kingdom (under the jurisdiction of common law), rather than that of China. Moreover, the Chinese real estate securities market is still relatively undeveloped and needs a longer time to mature; for example, there is no REIT market in China. In contrast, the Hong Kong securitized real estate market is one of the world's largest markets and its listed real estate companies have long established track records on the Hong Kong stock exchange. …