Residential Real Estate Return, Risk and Portfolio Building of Cities in China
Posted: 26 Feb 2020 Last revised: 9 Nov 2020
Date Written: January 26, 2020
In this paper, we build up a portfolio in the Chinese residential real estate market. We separate 35 big cities in China into 3 groups with different criteria. Then we build portfolios for these groups, by comparing the efficient frontier and Sharpe ratio with the portfolio of full samples. We find out the most suitable criteria to be the Real Housing Price Increase Rate.
Then we choose cities in the different groups together to find out the portfolio which has a high Sharpe Ratio with limited cities number.
This means the real estate company could invest in limited cities to get a similar portfolio performance with the full area. We test if this method in other parts of China, and the result shows this method could also work well. Our research has valuable meaning for both investors and policymakers.
Keywords: Residential real estate, Risk and return, Diversification, Real Estate Portfolio, Chinese Cities
JEL Classification: C32, C58, E43, G12, G15, R3
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