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Responds to “A note on ‘The initial yield revealed: explicit valuations and the future of property investment’” published in an earlier issue of the Journal of Property…
Responds to “A note on ‘The initial yield revealed: explicit valuations and the future of property investment’” published in an earlier issue of the Journal of Property Valuation & Investment. Addresses issues raised and develops and extends the organizations of the original paper, in particular: definitions of certain concepts; the determination of value; the need for explicit valuations; price formation in the property market; and the influence of valuation on price. Reiterates the purposes of the original worked example of valuations; produces a corrected version; and in an appendix presents extended solutions and a fuller discussion of the central issues.
Addresses the issue of valuation variation. The fundamental research question is to establish the range of valuations which a group of qualified valuers operating in the…
Addresses the issue of valuation variation. The fundamental research question is to establish the range of valuations which a group of qualified valuers operating in the same market and using the same basic assumptions would produce in their estimation of price. It significantly extends the approach adopted by Hager and Lord and draws conclusions about different market sectors, locations and size of firms. The results of the survey show a wide variation in value across both rack rented and reversionary interests. In terms of the former over 80 per cent of all valuations produced a variation from the mean of less than 20 per cent with a corresponding figure of over 90 per cent for the reversionary investments. These levels of accuracy fall short of the contention that valuers can value to within 5‐10 per cent of market value.
Starts from the basic principles of property investment and showsthat the initial yield conceals estimates of a risk premium, expectedincome growth and expected…
Starts from the basic principles of property investment and shows that the initial yield conceals estimates of a risk premium, expected income growth and expected depreciation. Suggests that an explicit valuation procedure which can be used at any level ranging from a single property to the aggregate market may be constructed. Concludes that the surveying profession is under threat from those able to meet the growing demand for such explicit analyses.
Considers the role of property in a multi‐asset portfolio andhighlights the need for property to be subject to the same analyticalframework as other assets in the…
Considers the role of property in a multi‐asset portfolio and highlights the need for property to be subject to the same analytical framework as other assets in the portfolio. Discusses the principles of portfolio construction, consisting of development of economic scenarios; forecasts of return on asset classes; asset allocation and portfolio construction; and stock selection. Sets out a strategic framework for the construction of a property portfolio, which involves an explicit consideration of risk and return relative to an appropriate benchmark. States that both the structure and stock of the fund need to be considered. Suggests that most of the published work on the subject is seriously flawed by inadequate data.
Analyses data from the USA and UK to determine whetherdiversification within a region by property type is better thandiversification between regions within a property…
Analyses data from the USA and UK to determine whether diversification within a region by property type is better than diversification between regions within a property type. Compares both strategies to full diversification by both property type and region. Calculates and compares property type and regional correlation matrices. Produces efficient frontiers and calculates principal components to determine if there are dominant property type or regional dimensions to real estate returns. Suggests that for the USA a purely retail portfolio diversified over all regions would have been almost as effective as a fully diversified portfolio. In the UK, there is less diversity across regions within retail property. Overall, there is no simple conclusion applicable to all regions and all property types in either country.
Based on a multivariate analysis of long‐term total returns and inflation data over the period 1963‐1993, shows that commercial property total returns reflect both…
Based on a multivariate analysis of long‐term total returns and inflation data over the period 1963‐1993, shows that commercial property total returns reflect both expected and unexpected components of inflation in the long term. There is no evidence that property returns systematically provide, on an annual basis, hedging characteristics against either of these components.
This study examines the issue of cross‐continental publishing in real estate research to understand the research interaction between the two major English‐speaking…
This study examines the issue of cross‐continental publishing in real estate research to understand the research interaction between the two major English‐speaking countries and to determine if a home bias exists. This study also determines the extent to which authors from other countries publish in US and UK journals, and provide a ranking of non‐US universities and authors. The survey of top US and UK real estate journals from 1993 through 1998 reveals that a home bias exists. The home bias concentration is higher in US journals than in UK journals, while UK journals exhibit more balanced origins, emanating not only from the USA/Canada, but also from Australia, New Zealand and Asia. In addition, the study reveals that the Universities of Reading, Ulster and Glasgow are well placed among European universities, while the National University of Singapore ranks well in Asia. Top US researchers tend to publish exclusively in US journals; likewise the same is observed for UK researchers. However, some notable exceptions are observed. Finally, a possible reason for the home bias could be the different research approaches undertaken by US and UK journals.
The paper aims to conduct an empirical study of three models of property derivatives: index-based derivatives, factor hedges, and combinative hedges based on index and…
The paper aims to conduct an empirical study of three models of property derivatives: index-based derivatives, factor hedges, and combinative hedges based on index and factors. The objective is to test whether the latter two models introduced by Lecomte dominate the index-based model used for existing property derivatives such as EUREX futures contracts.
Based on investment property database (IPD) historical database covering 224 individual office properties from 1981 to 2007, the study assesses ex ante hedging effectiveness of the three models. Nine simulations are run under different hypotheses involving individual buildings and portfolios. The 17 factors included in the study cover both macro-factors (e.g. macroeconomic indicators) and micro-factors linked to the properties (e.g. age).
Atomization and periodic rebalancing of property derivatives' underlying make it possible to substantially increase hedging effectiveness for a large majority of buildings in the sample. However, combinative hedges are overall superior to factor hedges owing to the overriding role played by IPD indices in capturing risk.
Due to confidentiality requirements inherent to the use of property level data, the study downplays the role of micro-factors on real estate risk at the property level.
The paper introduces a typology of optimal hedges aimed at individual property owners and portfolio holders in the City office property market.
This is the first time a comprehensive analysis of different models of property derivatives is conducted. The value of the paper stems from the use of property level data.