Is residential property the ultimate hedge against inflation ? new evidence from Malaysia based on ARDL and nonlinear ARDL

Residential property is seen as a good investment asset which can protect the real wealth of investors against increase in prices of goods and services. Despite rising house prices, consumer home buying power is still going strong in Malaysia. Nevertheless, many believe that over longer time horizon, house prices could decline jeopardizing the real returns on investment especially during inflationary pressure. Therefore, this paper aims to analyze the inflation-hedging abilities of Malaysian housing properties both in the long run and short run. We extend current literature using relatively advanced technique of NARDL (Shin et al, 2014) in order to examine the intrinsic asymmetric relationship among the variables. Different hedging tools are included for comparison purpose namely, gold price and stock price. Overall, we find that house price responds to inflation rate asymmetrically in the long run. Gold has asymmetric linkage with inflation but the NARDL estimation result is insignificant, whereas stock price is proven to be a much better option as it reacts symmetrically over both short- and longer-time horizon. However, house ownership can still hedge against inflation in the long-run since the home prices have risen faster than inflation rate during the recent housing bubbles. The findings tend to suggest that ignoring potential nonlinearity may lead to misleading evidence as house prices can be influenced by different macroeconomic determinants. Therefore, it could be of major importance for more effective property investment and policymaking in the context of the Malaysian house market