Residential Real Estate and Inflation Hedging Ability: Evidence from 14 Major Cities in Indonesia

Abstract

This paper examines the effectiveness of residential real estate as a hedge instrument against inflation by analyzing quarterly city-level housing price data across 13 cities and one metropolitan area in Indonesia over the period 20032025. The empirical results from a nonlinear autoregressive distributed lag (NARDL) framework indicate that residential real estate does not protect from inflationary pressures in the long or short run. Heterogeneity analysis reveals that smaller property sizes perform better in terms of hedging ability, although this is only detected in several cities. Our findings show that residential real estate primarily serves as a consumption good rather than a financial asset for inflation protection in the Indonesian context. 

JEL:  G11, R30.