A prolonged financial crisis: adjustments and prospects in Eurozone's southern markets

2014 ◽  
Vol 32 (1) ◽  
pp. 94-102 ◽  
Author(s):  
Sotiris Tsolacos
Keyword(s):  
Real Estate ◽  
Risk Premium ◽  
Real Estate Market ◽  
Growth Potential ◽  
Data Series ◽  
Structural Reforms ◽  
Investment Activity ◽  
Content Type ◽  
The Future ◽  
Business Confidence

Purpose – The economic slump in the southern member states of the Eurozone has brought real estate market activity to a standstill and has raised questions about the future of these markets. Will they rebound and will they command a higher risk premium? This paper aims to assess the outlook for these markets as the crisis continues and analyses the conditions that are a prerequisite to restore investment activity and a healthy occupier market. Design/methodology/approach – Within a portfolio allocation framework, the paper examines the conditions for the revival of investor interest in these markets and the uncertainties that should be resolved. Through the analysis of selected data, the paper assesses the emerging state of these markets. Findings – The economic slump in peripheral Eurozone economies gives way to a period of slow growth and ongoing structural reforms. The latter are necessary to restore confidence in the respective economies and investment markets. Sentiment indicators contain the first signs of a rebound in business confidence. With confidence returning and mitigated macroeconomic risks investors will seek value in the markets of the southern region on a selective basis. Price corrections and yield differentials with core markets could prove attractive. It is, however, argued that a risk premium will remain to reflect progress with structural reforms that will make the economies more competitive and less prone to a similar crisis in the future. It is only when such reforms will firmly be put in place that pricing in the southern Eurozone markets will reflect cyclical risks and diversification contributions. Practical implications – The article provides a structured approach to assess the outlook for peripheral markets. It identifies the key risks affecting investor confidence. The analysis proceeds to stress conditions that should be satisfied for a rebound in the investment market. Signals from selected data series are extracted to assess sentiment and adjustment in the market and assist in the assessment of real estate market prospects in these economies. Originality/value – The paper examines conditions for investing in the hard hit markets of the Eurozone. It illustrates the path for the recovery in these markets and the conditions for the rebound in investment volumes. It contributes to the analysis of the growth potential and risk of these markets for investment purposes.

scholarly journals Cap rates and risk: a spatial analysis of commercial real estate

2018 ◽  
Vol 35 (1) ◽  
pp. 25-43
Author(s):  
Florian Unbehaun ◽  
Franz Fuerst
Keyword(s):  
Real Estate ◽  
Risk Perceptions ◽  
Large Scale ◽  
Risk Premia ◽  
Real Estate Market ◽  
Commercial Real Estate ◽  
Data Series ◽  
Large Set ◽  
Content Type ◽  
The Impact

Purpose This study aims to assess the impact of location on capitalization rates and risk premia. Design/methodology/approach Using a transaction-based data series for the five largest office markets in Germany from 2005 to 2015, regression analysis is performed to account for a large set of asset-level drivers such as location, age and size and time-varying macro-level drivers. Findings Location is found to be a key determinant of cap rates and risk premia. CBD locations are found to attract lower cap rates and lower risk premia in three of the five largest markets in Germany. Interestingly, this effect is not found in the non-CBD locations of these markets, suggesting that the lower perceived risk associated with these large markets is restricted to a relatively small area within these markets that are reputed to be safe investments. Research limitations/implications The findings imply that investors view properties in peripheral urban locations as imperfect substitutes for CBD properties. Further analysis also shows that these risk premia are not uniformly applied across real estate asset types. The CBD risk effect is particularly pronounced for office and retail assets, apparently considered “prime” investments within the central locations. Originality/value This is one of the first empirical studies of the risk implications of peripheral commercial real estate locations. It is also one of the first large-scale cap rate analyses of the German commercial real estate market. The results demonstrate that risk perceptions of investors have a distinct spatial dimension.

The dynamics of risk premium: the case of the Taiwan real estate market

2015 ◽  
Vol 16 (4) ◽  
pp. 463-482 ◽  
Author(s):  
Vijay Kumar Vishwakarma
Keyword(s):  
New York ◽  
Real Estate ◽  
Risk Premium ◽  
Real Estate Market ◽  
Information Environment ◽  
Time Varying ◽  
Content Type ◽  
Real Estate Markets ◽  
New Information ◽  
Information Set

Purpose – This paper aims to examine the risk premium for investors in a changing information environment in the Taiwan, New York and London real estate markets from March 2006 to November 2014. This study attempts to quantify behavioral expectations regarding (or motivation for) investment in the Taiwanese real estate in a changing information environment. Design/methodology/approach – This paper uses the rolling generalised autoregressive conditionally heteroskedastic in mean (GARCH-M) methodology which fixes the problem of conventional GARCH-M methodology. Findings – Empirical evidence suggests that the time-varying risk premium changed for the Taiwan real estate market with a new information set. The risk premium changed from 1.305 per cent per month to −7.232 per cent per month. The study also found persistent volatility shocks from March 2006 to November 2014. No such evidence was found for the New York and London real estate markets. Overall, this study finds evidence of a time-varying risk premium, partly explainable by governmental policies and partly unexplainable. Research limitations/implications – The use of the index of Standard and Poor’s Taiwan Real Estate Investment Trusts to study the Taiwan real estate industry may have aggregation effects in result. Practical implications – The present study will provide guidance to investors as well as policymakers regarding the Taiwan real estate market. Originality/value – This study uses the rolling GARCH-M model, which is a first for the Taiwan real estate market.

An assessment of the risk and return of residential real estate

2015 ◽  
Vol 41 (6) ◽  
pp. 591-599 ◽  
Author(s):  
Dale Domian ◽  
Rob Wolf ◽  
Hsiao-Fen Yang
Keyword(s):  
Asset Pricing ◽  
Real Estate ◽  
Risk Premium ◽  
Real Estate Market ◽  
Individual Investors ◽  
Residential Real Estate ◽  
Risk And Return ◽  
Content Type ◽  
Market Risk Premium ◽  
Substantial Investment

Purpose – The home is a substantial investment for most individual investors but the assessment of risk and return of residential real estate has not been well explored yet. The existing real estate pricing literature using a CAPM-based model generally suggests very low risk and unexplained excess returns. However, many academics suggest the residential real estate market is unique and standard asset pricing models may not fully capture the risk associated with the housing market. The purpose of this paper is to extend the asset pricing literature on residential real estate by providing improved CAPM estimates of risk and required return. Design/methodology/approach – The improvements include the use of a levered β which captures the leverage risk and Lin and Vandell (2007) Time on Market risk premium which captures the additional liquidity risk of residential real estate. Findings – In addition to presenting palatable risk and return estimates for a national real estate index, the results of this paper suggest the risk and return characteristics of multiple cities tracked by the Case Shiller Home Price Index are distinct. Originality/value – The results show higher estimates of risk and required return levels than previous research, which is more consistent with the academic expectation that housing performs between stocks and bonds. In contrast to most previous studies, the authors find residential real estate underperforms based on risk, using standard financial models.

The Determinants of the Ex Ante Risk Premiumin Commercial Real Estate

2019 ◽  
Vol 41 (3) ◽  
pp. 411-441
Author(s):  
El i Beracha ◽  
Julia Freybote ◽  
Zhenguo Lin
Keyword(s):  
Real Estate ◽  
Risk Premium ◽  
Predictive Power ◽  
Real Estate Market ◽  
Commercial Real Estate ◽  
Stock Market Volatility ◽  
Switching Regression ◽  
Risk Premiums ◽  
Debt Capital ◽  
Ex Ante

We investigate the determinants of the ex ante risk premium in commercial real estate. Using a 20-year time series and Markov-switching regression, we find that the ex ante risk premium is affected by fundamental and non-fundamental determinants, albeit not symmetrically when risk premiums are increasing and decreasing. In particular, we find that changes in debt capital market conditions have a higher predictive power for changes in the ex ante risk premium when it is increasing, while changes in stock market volatility and commercial real estate market returns have a higher predictive power when the risk premium is on the decline. In addition, changes in commercial real estate sentiment and NAREIT returns can predict changes in the ex ante risk premium; however, the predictive power of these variables varies across property types and risk premium (risk perception) states.

What drives housing prices, rent and new construction in China

2017 ◽  
Vol 10 (5) ◽  
pp. 662-686
Author(s):  
Dimitrios Staikos ◽  
Wenjun Xue
Keyword(s):  
Real Estate ◽  
Empirical Test ◽  
Housing Prices ◽  
Panel Cointegration ◽  
Real Estate Market ◽  
Estimation Methods ◽  
Content Type ◽  
New Construction ◽  
Using Data ◽  
First Time

Purpose With this paper, the authors aim to investigate the drivers behind three of the most important aspects of the Chinese real estate market, housing prices, housing rent and new construction. At the same time, the authors perform a comprehensive empirical test of the popular 4-quadrant model by Wheaton and DiPasquale. Design/methodology/approach In this paper, the authors utilize panel cointegration estimation methods and data from 35 Chinese metropolitan areas. Findings The results indicate that the 4-quadrant model is well suited to explain the determinants of housing prices. However, the same is not true regarding housing rent and new construction suggesting a more complex theoretical framework may be required for a well-rounded explanation of real estate markets. Originality/value It is the first time that panel data are used to estimate rent and new construction for China. Also, it is the first time a comprehensive test of the Wheaton and DiPasquale 4-quadrant model is performed using data from China.

Linkages between cross-country business cycles, cross-country stock market cycles and cross-country real estate market cycles

2016 ◽  
Vol 9 (2) ◽  
pp. 123-146 ◽  
Author(s):  
Kim Hiang Liow
Keyword(s):  
Real Estate ◽  
Stock Market ◽  
Business Cycles ◽  
Spillover Effects ◽  
Real Estate Market ◽  
Stock Market Index ◽  
Content Type ◽  
Market Index ◽  
Cross Country ◽  
The Cross

Purpose This research aims to investigate whether and to what extent the co-movements of cross-country business cycles, cross-country stock market cycles and cross-country real estate market cycles are linked across G7 from February 1990 to June 2014. Design/methodology/approach The empirical approaches include correlation analysis on Hodrick–Prescott (HP) cycles, HP cycle return spillovers effects using Diebold and Yilmaz’s (2012) spillover index methodology, as well as Croux et al.’s (2001) dynamic correlation and cohesion methodology. Findings There are fairly strong cycle-return spillover effects between the cross-country business cycles, cross-country stock market cycles and cross-country real estate market cycles. The interactions among the cross-country business cycles, cross-country stock market cycles and cross-country real estate market cycles in G7 are less positively pronounced or exhibit counter-cyclical behavior at the traditional business cycle (medium-term) frequency band when “pure” stock market cycles are considered. Research limitations/implications The research is subject to the usual limitations concerning empirical research. Practical implications This study finds that real estate is an important factor in influencing the degree and behavior of the relationship between cross-country business cycles and cross-country stock market cycles in G7. It provides important empirical insights for portfolio investors to understand and forecast the differential benefits and pitfalls of portfolio diversification in the long-, medium- and short-cycle horizons, as well as for research studying the linkages between the real economy and financial sectors. Originality/value In adding to the existing body of knowledge concerning economic globalization and financial market interdependence, this study evaluates the linkages between business cycles, stock market cycles and public real estate market cycles cross G7 and adds to the academic real estate literature. Because public real estate market is a subset of stock market, our approach is to use an original stock market index, as well as a “pure” stock market index (with the influence of real estate market removed) to offer additional empirical insights from two key complementary perspectives.

A post-global financial crisis (GFC) framework for strategic planning, assessment and management decision making for US sustainable commercial real estate

2017 ◽  
Vol 35 (6) ◽  
pp. 589-618 ◽  
Author(s):  
Pernille Hoy Christensen
Keyword(s):  
Decision Making ◽  
Financial Crisis ◽  
Real Estate ◽  
Performance Indicators ◽  
Institutional Investors ◽  
Global Financial Crisis ◽  
Real Estate Market ◽  
Commercial Real Estate ◽  
Content Type ◽  
Sustainability Initiatives

Purpose The purpose of this paper is to understand both the facts and the values associated with the breadth of issues, and the principles related to sustainable real estate for institutional investors. Sustainable real estate is a growing sector within the commercial real estate industry, and yet, the decision-making practices of institutional investors related to sustainability are still not well understood. In an effort to fill that gap, this research investigates the post-global financial crisis (GFC) motivations driving the implementation of sustainability initiatives, the implementation strategies used, and the predominant eco-indicators and measures used by institutional investors. Design/methodology/approach This paper presents the results of a three-round modified Delphi study conducted in the USA in 2011-2012 investigating the nature of performance measurements and reporting requirements in sustainable commercial real estate and their impact on the real estate decision-making process used by institutional investors. Two rounds of in-depth interviews were conducted with 14 expert panelists. An e-questionnaire was used in the third round to verify qualitative findings. Findings The key industry drivers and performance indicators influencing institutional investor decision making were associated with risk management of assets and whether initiatives can improve competitive market advantage. Industry leaders advocate for simple key performance indicators, which is in contrast to the literature which argues for the need to adopt common criteria and metrics. Key barriers to the adoption of sustainability initiatives are discussed and a decision framework is presented. Practical implications This research aims to help industry partners understand the drivers motivating institutional investors to uptake sustainability initiatives with the aim of improving decision making, assessment, and management of sustainable commercial office buildings. Originality/value Building on the four generations of the sustainability framework presented by Simons et al. (2001), this research argues that the US real estate market has yet again adjusted its relationship with sustainability and revises their framework to include a new, post-GFC generation for decision making, assessment, and management of sustainable real estate.

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