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Is real estate considered a safe asset in East Asia?

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  • Yiyun Yang
  • Leyi Chen

Abstract

The demand for safe assets has increased in recent years. However, the supply of safe assets has remained concentrated in a few Western developed countries, and it cannot meet the demand for safe assets in East Asia. For historical and cultural reasons, we believe that real estate serves as safe assets in East Asia. To verify this issue, this study employs two sets of data, which, respectively, include three East Asian countries and eight Western countries, from 1998 to 2019 to construct two panel vector autoregressive (PVAR) models that we use to determine the differences between the housing markets in East Asian and Western nations. The empirical results show that house prices in East Asia tend to increase with economic policy uncertainty (EPU), indicating that real estate is a good hedge against uncertainty. In Western countries, however, real estate does not hold its value well in times of uncertainty. Therefore, this study confirms that real estate is a safe asset in East Asia, but not in Western countries. To lower the excessive price of houses in East Asian countries, this study recommends increasing the supply of other safe assets.

Suggested Citation

  • Yiyun Yang & Leyi Chen, 2022. "Is real estate considered a safe asset in East Asia?," Applied Economics Letters, Taylor & Francis Journals, vol. 29(7), pages 604-614, April.
    • Handle: RePEc:taf:apeclt:v:29:y:2022:i:7:p:604-614
    DOI: 10.1080/13504851.2021.1878091
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