Davis, P. (2011), "Property (papers 4-6)", Journal of Financial Management of Property and Construction, Vol. 16 No. 3. https://doi.org/10.1108/jfmpc.2011.37616caa.003
Emerald Group Publishing Limited
Copyright © 2011, Emerald Group Publishing Limited
Property (papers 4-6)
Article Type: Guest editorial 2 From: Journal of Financial Management of Property and Construction, Volume 16, Issue 3
It was with great pleasure that I accepted the invitation to become involved in this 15th anniversary issue of the journal, celebrating its creation in bringing together traditional strengths of property research at Ulster University and construction research at Salford University to build a nexus for property and construction research. In an increasingly competitive global environment, pressure is being applied to the boundaries of traditional disciplines. Whilst much can be gleaned from the worlds of finance engineering and business management, there is much still that property and construction can learn from each other, not least in how externally sourced modern techniques are being adopted and adapted within the respective disciplines.
The three property papers in this issue cover a broad range of the discipline. They also have elements which can be considered thematically related. Two of the papers are based in the developing world, one looking at the financing of housing in Nigeria, the other at the portfolio performance potential of property stock in a South African context. Two of the papers consider the broad aspect of risk analysis and reduction, first in the South African Portfolio context, the second in terms of development appraisal. Two of the papers can perhaps be characterised as suggesting that traditional and/or less complex methods have the potential to be relatively effective, first in terms of informal housing finance and second with regards to development appraisal techniques.
The first property paper by Peter Byrne, Pat McAllister and Peter Wyatt examines the performance of residual development appraisal – the traditional “yardstick” of development feasibility. The paper examines traditional and more sophisticated manifestations of the approach in order to determine whether increased sophistication yields performance enhancement. This is both important and topical given the increasing focus on demonstrating financial and economic feasibility of schemes seeking government approval and as the basis for determining the financial contribution from developers to public infrastructure provision. The findings are interesting in that sophistication does not appear to be related to performance, rather that the performance of more simple and more complex methods appears to be broadly similar. Whilst this may give succour to proponents of traditional approaches, it places a considerable question mark against the entire practice of residual development appraisal and its suitability for the expanded role to which it is increasingly being put. The further study to which this paper is a precursor is to be welcomed and is likely to prove of great interest to policy makers and practitioners in the development field.
The second paper by Abel Olaleye examines the potential diversification benefits of listed property stock for mixed asset portfolios, in a South African context. The paper adopts a variety of modern analytic approaches to measure performance enhancement and risk reduction benefits from the introduction of property stock to multi-asset portfolios. It finds that in this instance, return enhancement is more marked than risk reduction. It also suggests that property stock has more limited diversification benefits than the literature to date has suggested, adding to the debate surrounding the nature of REITs and other listed property stock, as to whether they perform more like direct real estate or equities in a portfolio. One important message from the paper is to be wary of generalisation across market areas, particularly when one moves away from the more tightly interrelated markets of Western Europe and North America.
The final property paper by S.D. Wapwera, Ali Parsa and Charles Egbu examines the role of finance for low-income housing in Nigeria. It identifies an area of market failure in terms of formal avenues of credit provision. This is likely to be a common problem across the developing world and has its obvious echoes in developed economies, post “credit crunch”. It identifies a range of traditional and informal sources of finance which, to an extent, fill the gap left by the absence of modern credit facilities. Some of these exhibit characteristics not dissimilar to the early stages of the development of building societies and other mutuals, as well as the tontines and other schemes which have been utilised elsewhere to allow individuals to exploit community capital for the purposes of housing provision and business expansion. The paper identifies the potential of this informal sector to become the basis for more formalised, “home grown” providers of housing finance, rather than merely a stop gap until established providers enter the market.
Together the three papers combine to give an impression that there is considerable scope for continued analysis and scrutiny of accepted approaches and received wisdom in different market settings. From a developing world perspective, the knowledge that more simple approaches may perform as well as their more sophisticated brethren, that home grown solutions may be as valuable as imported and that local conditions may affect outcomes, is perhaps of particular note.
Peadar DavisGuest Editor