POTENTIAL FOR PORTFOLIO DIVERSIFICATION ACROSS CHINA’S REAL ESTATE MARKETS

Abstract: The starting point for this study is to reveal the potential for risk diversification in China’s real estate investment. It explores the diversification opportunities across thirty-five large-scale and medium-scale cities in China; designs the basic diversification strategy by grouping the submarkets in the sampled six cities and investigates whether there is any stability in cluster membership across sub-periods. Hierarchical cluster analysis and K-means cluster analysis are employed successively to decide the suitable number of the cluster and the composition of each cluster. The results of cluster analyses provide strong evidence for the existence of homogeneous clusters in the thirty-five real estate markets, and the sampled study identified four unstable clusters in twenty-four submarkets. This research sheds light on the potential for the real estate portfolio diversification across cities, property types or revenue types and, also, suggested the investors to balance risk and cost with discreet market analysis and self-appraisement