Developing a successful strategy for investment in property is not easy. Research shows that abnormal returns, net of transactions costs, are difficult to achieve even though there is a widespread belief amongst valuers that property markets are inefficient. This is compounded by the fact that reliable data on property performance is usually difficult to obtain. It is possible, however, to make use of publicly available data and use it in a way which may help investors guide their decisions. If abnormal returns are difficult to achieve on a consistent basis then the use of methods of analysis which give the investor some competitive advantage are worth pursuing. Although high returns have been achieved in the Hong Kong commercial property market this does not imply that those returns are abnormal in an economic sense; they may merely offer compensation for risk. By extracting equilibrium market values and implied prices from market data this paper examines abnormal returns earned by Hong Kong commercial property over the period 1985‐95 and shows that, in general, the market exhibits a high degree of efficiency. The least efficient sector was offices, which showed an average abnormal return of 1.73 per cent per quarter, although this was statistically indistinguishable from zero. Identifying when the market is under‐ and overpriced may improve the negotiating position of the investor. It may also be possible to develop similar buy‐sell strategies to exploit informational inefficiencies at the individual property level.
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