Emerald Group Publishing Limited
Copyright © 2004, Emerald Group Publishing Limited
Knowing Gerald as a colleague at the National University of Singapore when he was writing the final stages of the book provided me with valuable first hand impressions of the book Real Estate Investment: A Capital Market Approach. The best way to describe the book is that it is a labor of love for Gerald.
First, the book is developed from Gerald Brown's earlier book Property Investment and Capital Markets published in 1991, but it is clear that the this book represents a significant improvement. Second, Gerald took great pains in ensuring that the book is readable – technical readings are conveniently found in the Appendices following each chapter; favoring the use of the second person, etc. Third, Gerald chose the cover after much careful thought. The original cover shows a spiraling staircase that “spirals down to nowhere!” Such is the care that went into this book. Last, but not least, the book was written with sweet jazz music in the background – a labor of love.
The book is divided into three basic sections. The first is an introduction to financial concepts, the second is on risk and return while the third section focuses on portfolio management. The coverage on cash flow analysis, valuation models, mechanics of mortgages and interest rates, investment and capital budgeting analysis are easy to read, especially for undergraduates pursuing an interest in real estate. It should be noted that the first chapter provides a good link between valuation and financial theory.
Although it may seem on the surface that any basic real estate investment text should focus on risk and return, chapters 7 and 12 in Real Estate Investment: A Capital Market Approach mark a departure. I find the material in chapter 7, which focuses on the relation between valuation (appraisal) and price, a refreshing distinction from the traditional treatment of valuation. Chapter 12 examines valuation smoothing, a topic that has drawn much attention in the real estate literature over the 1990s. Valuation smoothing is an area of research that reflects Gerald contribution to the literature, and I find the material refreshingly well written and succinct. The book provides arguably one of the best references on valuation smoothing.
Personally, I like the way the optimal updating strategy for valuers is used to motivate valuation smoothing, drawing on works from game theory and economics. In addition, the text provides an excellent explanation on how the smoothing parameter can be estimated, how to detect smoothing and how property index aggregation is influenced by smoothing, and vice versa.
The portfolio management section of the book covers the efficient markets hypothesis, inflation hedging, portfolio strategy and portfolio measurement, not unlike most finance textbooks. Chapter 14 examines an important feature of real estate – its inflation hedging property. The appendices to Chapter 14 contain many useful empirical studies covering the USA, UK, Switzerland and Hong Kong. Chapter 15 provides a good coverage of portfolio strategies.
I find the chapter on performance measurement particularly interesting. Although it may seem somewhat trivial, performance measurement for real estate is not as straightforward as it seems. Take the example of property company performance. There is evidence (in the book) to suggest that property companies should be measured with time‐varying parameters.
The book also provides thoughtful sections for readers who are not very mathematically inclined. The sum of some important series, probability distributions and how to graph functions are some examples. I find these to be very well written and would serve as good introductions for undergraduate students.
Did I mention readability? This book is highly readable, period.
Although I have agreed to review this book some time ago, I have put off this task time and again, for a simple reason – every time I read the book, I cannot help but imagine Gerald speaking to me through the text. The clarity of language, the kindly patience and the scholarly care that epitomize Gerald and his work came through ever so poignantly.
Perhaps that is the main reason I keep coming back to Real Estate Investment: A Capital Market Approach.