The purpose of this paper is to conceptualise a workable strategic asset allocation (SAA) model, given the data paucity problem, and involve an ex ante framework that is…
The purpose of this paper is to conceptualise a workable strategic asset allocation (SAA) model, given the data paucity problem, and involve an ex ante framework that is distributional free.
The SAA model is developed within a semi‐quantitative and expert‐based framework – the analytic hierarchy process (AHP) – and not a purely time‐series one. It is developed on the basis of consensus by a group of real estate investment experts, who agree on a fixed investment time horizon so that the time factor is disregarded as a variant. The SAA becomes the interface around which a set of tactical bands is imposed, subject to the Markowitz mean‐variance optimisation, and utilizing the total‐return data set of the Jones Lang LaSalle Real Estate Intelligence Service‐Asia. The lower and upper limits of the tactical bands represent the cyclical attractiveness of the various Asian office markets as growth and value‐added markets
The SAA‐AHP model robustly reflects expert judgement among a cohesive group of real estate investment experts, with regard to a Pan‐Asia office market portfolio of eight major Asian cities. Through pair‐wise comparisons and subject to consistency checks in terms of the consistency ratio of <0.10, then the comparative expert assessment of the macro‐economic and the real estate specific factors driving individual Asian real estate markets, would be consistent (i.e. non conflicting). Then the total weighted evaluations of individual markets are derived and deployed as the SAA portfolio mix. This portfolio mix thus becomes the appropriate interface, around which the tactical asset allocation (TAA) is developed within defined tactical bands. These bands must be in line with the underlying Asian real estate market analysis and their cyclical positions. The TAA is obtained through the Markowitz mean‐variance portfolio optimisation, with the objective of locating the optimally efficient TAA on the Markowitz efficient frontier, under a maximising risk‐adjusted‐return Sharpe ratio.
The SAA‐AHP model is reliant on an ex ante assessment of alternative asset allocation strategies on the basis of expert judgement of the macroeconomic environment and the Asian office markets. It is an appropriate SAA alternative to one based on the typical economic‐sized indicators, for example, the urban GDP.
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.
This paper examines the adverse selection problem associated with the pre‐completion marketing of property developments. When developers choose to finance their projects…
This paper examines the adverse selection problem associated with the pre‐completion marketing of property developments. When developers choose to finance their projects by pre‐selling in a pooling equilibrium, they pass on the risk of failure to the buyers and increase expected profits. Pre‐selling not only places buyers at a potential disadvantage if unexpected negative price shocks occur, but encourages more less‐profitable projects to be undertaken by bad developers. In addition, pre‐selling aggravates the building boom and bust cycle. However, the adverse selection problem can be eliminated if good developers choose to separate themselves by not pre‐selling under the appropriate conditions. This paper also examines interesting comparative statics and policy implications.
While the development of real estate derivative contracts has important implications for real estate as an asset class, it has not been widely accepted in Asia. This paper…
While the development of real estate derivative contracts has important implications for real estate as an asset class, it has not been widely accepted in Asia. This paper aims to examine the issues involved in developing the real estate derivative market for Singapore.
The concept of real estate derivatives is reviewed. The limitations to the extant real estate index are discussed. Different approaches to constructing real estate indices are discussed in particular reference to the features of the Singapore real estate market.
The Singapore residential market is dominated by public housing, heterogeneity and relatively low turnover. The applicability of repeat sales approach may not be well suited. Geostatistical models appear promising. The commercial real estate market suffers from even lower turnover. The most appropriate commercial real estate index could be similar to that offered by IPD. Several issues were also highlighted. First, the index must pass the stringent scrutiny of academia and experts. Second, the index must be well understood and accepted by the industry. Third, the index must be published in a timely fashion and without biases. Fourth, there must be a trustworthy producer of the index.
For an index to be accepted, it must satisfy the issue of fungibility. International investors looking for exposure or hedging strategies are likely to be familiar with established methodologies such as the repeat sales and appraisal‐based approaches.
Market acceptability of RED. If the experience in Europe is anything to go by, this is not an insurmountable issue that cannot be addressed with education and knowledge dissemination.
While real estate derivatives have immense potential and a tremendous growth in its development in Europe has been witnessed, it is clear that the real estate derivative industry is in its infancy. The paper examines the issues peculiar to Singapore with regard to the establishment of real estate derivative contracts. The paper is of interest to policy makers and industry practitioners.
A game‐theoretic model of moral hazard associated with unobservable builder effort is postulated to examine the effectiveness of homeowner warranties and building code enforcement by local government in assuring desired builders’ effort. Builders have an incentive to claim and charge for high unobservable effort level in constructing homes, but actually exert low effort to earn higher profits. We find that a homeowner warranty increases the unobservable effort of the builder, but cost minimizing behavior by the builder results in an effort choice less than the most efficient level. On the other hand, building code enforcement essentially converts unobservable builder effort to observable effort and efficient effort is indeed possible if enforcement cost is justifiable. However, an overly strict building code may be detrimental to buyers. The conditions under which a buyer would prefer one alternative over the other and where both measures can co‐exist are also examined. The model provides several interesting implications and testable hypotheses. A survey of builders and building codes provides preliminary evidence to support the proposed model.