From P/E Ratio to Fuzzy Infinite Spreadsheet—Mathematically Rigorous Derivations of the Zeroth and the First Order Solutions of Rate of Return

The P/E Ratio (Price/Earning) is one of the most popular concepts in stock analysis, yet its exact interpretation is lacking. Most stock investors know the P/E Ratio as a financial indicator with the useful characteristics of being relatively time-invariant. In this paper, a rigorous mathematical derivation of the P/E Ratio is presented. The derivation shows that, in addition to its assumptions, the P/E Ratio can be considered the zeroth order solution to the rate of return on investment. The commonly used concept of the Capitalization Rate (Cap Rate = Net Income / Price) in real estate investment analysis can also be similarly derived as the zeroth order solution of the rate of return on real estate investment. This paper also derives the first order solution to the rate of return (Return = Dividend/Price + Growth) with its assumptions. Both the zeroth and the first order solutions are derived from the exact future accounting equation (Cash Return = Sum of Cash Flow + Cash from Resale). The exact equation has been used in the derivation of the exact solution of the rate of return. Empirically, as an illustration of an actual case, the rates of return are 3%, 73%, and 115% for a stock with 70% growth rate for, respectively, the zeroth order, the first order, and the exact solution to the rate of return; the stock doubled its price in 2004. This paper concludes that the zero-th, the first order, and the exact solution of the rate of return all can be derived mathematically from the same exact equation, which, thus, forms a rigorous mathematical foundation for investment analysis, and that the low order solutions have the very practical use in providing the analytically calculated initial conditions for the iterative numerical calculation for the exact solution. The solution of value belongs to recently classified Culture Level Quotient CLQ = 10 and is in the process of being updated by fuzzy logic with its range of tolerance for predicting market crashes to advance to CLQ = 2.

Influence of the global environment on capital flows in the London Office market

PurposeThe London office market is a major destination of international real estate capital and arguably the epicentre of international real estate investment over the past decade. However, the increase in global uncertainties in recent years due to socio-economic and political trends highlights the need for more insights into the behaviour of international real estate capital flows. The purpose of this study is to evaluate the influence of the global and domestic environment on international real estate investment activities within the London office market over the period 2007–2017.Design/methodology/approachThis study adopts an auto-regressive distributed lag approach using the real capital analytics (RCA) international real estate investment data. The RCA data analyses quarterly cross-border investment transactions within the central London office market for the period 2007–2017.FindingsThe study provides insights on the critical differences in the influence of the domestic and global environment on cross-border investment activities in this office market, specifically highlighting the significance of the influence of the global environment in the long run. In the short run, the influence of factors reflective of both the domestic and international environment are important indicating that international capital flows into the London office market is contextualised by the interaction of different factors.Originality/valueThe authors provide a holistic study of the influence of both the domestic and international environment on cross-border investment activities in the London office market, providing more insights on the behaviour of global real estate capital flows.

The uneven geography of real estate investment by Mainland Chinese state-owned and private enterprises in the U.S.: Local market conditions, migration, and ethnic networks

Since the 2010s, foreign direct investment in real estate (FDIRE) by Mainland Chinese firms has emerged as a major force within global real estate markets, challenging Western investors’ traditional dominance. It is unclear, however, whether Mainland Chinese FDIRE is fueled by the same motivations as those of investors from advanced economies, which to date have represented both the primary investors and main objects of study. One major difference may be that Mainland Chinese investment originates in an institutional environment comprised of strong state intervention and social networks important for fostering business and ethnic ties. To uncover the potentially unique determinants and heterogeneity of Mainland Chinese corporate real estate investors, we build and analyze a state-level panel dataset of Mainland Chinese FDIRE by state-owned enterprises and private enterprises in the U.S. from 2010 to 2017. Our empirical results reveal the importance of Chinese migrants in promoting Mainland Chinese real estate investment, especially by private enterprises. Our findings also demonstrate that at the state level, Mainland Chinese FDIRE exhibits few agglomerative tendencies.

Unconventional Monetary Policy through Open Market Operations: A Principal Component Analysis

This paper examines the unconventional monetary policies of the Bank of Japan from 2002 to 2019 with a focus on open market operations. We apply a principal component analysis to investigate the complexity of monetary policy. Our results identify four principal components that explain the variance of measures taken by the Bank of Japan and its operation of various facilities: asset purchase measures including Japanese Government Bonds (JGBs), Exchange-Traded Funds (ETFs), and Japanese Real Estate Investment Trusts (J-REITs), and three different liquidity supply measures. Complexity differs substantially among different governorships of Fukui, Shirakawa (most complex), and Kuroda. We derive some conclusions from the increased complexity with implications for the economy.

Effectiveness of rent recovery strategies on residential real estate in Ibadan, Nigeria

PurposeThe upward rise of the prolonged payback period and the inability of the project to generate estimated income that has been linked with the irregular rent payments has been a major problem confronting real estate investment. Given the fact that real estate investment is a risky investment venture with a highly uncertain future stream of income, this paper examines the effectiveness of rent recovery strategies in the emerging Nigeria residential real estate practice.Design/methodology/approachThe study employed an exploratory research design. The study identified the five recovery strategies adopted by the estate surveying and valuation firms in Ibadan Metropolis, Nigeria. The study adopts a purposive sampling method to select 52 registered estate firms in the study area and a questionnaire using a five-point Likert scale was used to elicit information. The data obtained were analyzed using descriptive and inferential statistics.FindingsThe result showed that the rent recovery strategies adopted by the respondents include email approach, rent reminder notice, adequate maintenance, eviction notice and dialogue approach. The perceived top-rated strategies that could influence estimated income were dialogue and rent reminder notice. Also, the findings showed the factors that influence the choice of strategy are property type, company policy and the proportion of rent to the tenant's income.Practical implicationsThe study has an implication for real estate investors and property practitioners regarding the willingness of the investors to invest in real estate investment.Originality/valueThis paper is relevant given the fact that the rental property market is prone to risk that could impede the regular streamflow of income. This serves as a need for examination of the effectiveness of adopted rent recovery strategies as it relates to real estate property management practice and investment viability.

The Revival of Business Groups’ Risk Sharing: Evidence from Japanese Real Estate Investment Trust Market

We examine the business groups’ risk-sharing hypothesis in the Japanese Real Estate Investment Trust (REIT) market in which the unique external management system seems to be reinforcing power relationships among firms affiliated with the modern Japanese business groups, called keiretsu. We find that REITs whose sponsors belong to one of the keiretsu groups (keiretsu REITs) have significantly lower volatility of profitability than REITs whose sponsors do not belong to the keiretsu groups (non-keiretsu REITs). There is no significant difference in profitability between keiretsu REITs and non-keiretsu REITs, controlling for firm and property characteristics. The abnormal portion of the profitability unexplained by firm characteristics is also significantly lower with keiretsu REITs. We also find that the keiretsu affiliation reduces the systematic volatility of affiliated REITs, while such an effect is not observed with the idiosyncratic volatility, suggesting that the risk-sharing effect may be beneficial for the value of REITs. Using the difference-in-differences design with propensity score matching, we find that the negative impact of the Great East Japan Earthquake on the profitability was significantly smaller with keiretsu REITs than with non-keiretsu REITs. Keiretsu REITs were also able to stabilize their capital structure by shifting some short-term debts to long-term debts without increasing the cost of loans under the uncertain situation caused by the Earthquake. Keiretsu REITs were able to borrow money from their affiliated group banks even right after the earthquake, while non-keiretsu REITs seem to have struggled to secure loans from those banks.

THE SIGNIFICANCE OF INTENT ON ZAKATABLE REAL ESTATE: A JURISTIC ANALYSIS

Real estate remains one of the most significant properties for personal use and investment purposes. Individual institutions and corporate bodies operate on real estate properties. In recent times, there have been several concerns among zakatable individuals and organizations on the shariah criteria for identifying zakatable real estate properties because of the difference between assets for personal use and commercial purposes. There is 'arūd tijārah (commodities for sale) such as real estate, land, car, and goods in real estate investment. On the other hand, 'arūd quniyyah, (durable properties) are intended for personal use such as a private house, private car, private vacation home. This study aims to conceptually analyze the concept of intention in Islam and its juristic interpretations to distinguish between zakatable and non- zakatable real estate properties. This study relies on the inductive approach in gathering and arranging data from classical and modern literature. It also uses the descriptive method in explaining the basic terms in the research. The study found that real estate owners' intent influences the asset's zakat status. First, 'arūd quniyyah (real estate) are durable assets, meant for personal use, are Zakat free, while the real 'arūd tijārah (estate commercial assets) are subject to Zakat. The commercial assets can also be for sale and rental. The study finally suggests that zakat calculations of zakatable real estate should be subjected to supervision and validation of competent contemporary Shariah scholars to ascertain juristic position on the distinctions between zakatable and non-zakatable assets.

A Review of Studies on Real Estate Investment Performance in Nigeria

This study has been conducted to review the studies conducted on property investment performance in Nigeria with the aim of providing a clear insight into the trend, authors’ affiliations, performance measurement techniques and the geographical focus of these studies. Published and unpublished research works in this research area were sourced and reviewed. The data and information used were sourced from online databases such as Google, Google Scholar, ScienceDirect, ProQuest, and ResearchGate. Printed journals (local and international), published and unpublished Masters and PhD theses were also among the sources of the data used. Descriptive statistics were used to analyse the authors’ contributions, affiliations, geographical focus and the annual research trend of real estate investment performance in Nigeria and the results reported. The study found that the first study conducted on the performance of real estate investment was Olaleye (2000) followed by Olaleye (2002). Olaleye, A., Oyewole, M. O. and Dabara, D. I. were found to be the most active and leading researchers on this research area with contributory scores of 3.87, 3.61 and 3.21 respectively. On the average, about 2 studies on the subject were carried out annually with focus majorly on the Lagos property market, Southwest Nigeria. The review further revealed that nominal rate of returns, Sharpe index and coefficient of variation were the common performance measurement indices often adopted by majority of the previous authors. This study recommends that collaborative effort should be established among scholars of estate management and practicing estate surveyors and valuers with a view to bridging the gap between theory and practice and boosting property data banking in Nigeria. The geographical scope of real estate investment performance in Nigeria needs to be expanded to adequately cover all the regional property markets.