Decision Making in Real Estate: Portfolio Approach

An investment policy is suggested about assets on real estate markets. Such analysis recommends investments in non-financial assets and optimization of the results from such decisions. The formalization of the investment policy is based on the portfolio theory for asset allocation. Two main criteria are applied for the decision making: return and risk. The decision support is based on Mean-Variance portfolio model. A dynamical and adaptive investment policy is derived for active portfolio management. Sliding procedure in time with definition and solution of a set of portfolio problems is applied. The decision defines the relative value of the investment to which real estates are to be allocated. The regional real estate markets of six Bulgarian towns, which identify the regions with potential for investments, are compared. The added value of the paper results in development of algorithm for a quantitative analysis of real estate markets, based on portfolio theory.

Real Estate Bubbles and Contagion: Evidence from Selected European Countries

Using quarterly housing price-to-rent ratios from 1970 to 2018, this paper investigated the presence of real estate bubbles at a national level in eight selected European countries, namely Belgium, France, Germany, Italy, the Netherlands, Portugal, Spain, and the United Kingdom. Then, we analyzed bubbles contagion among these countries. We applied the generalized sup ADF test developed by Phillips et al. (2015) to detect explosive behavior in house prices. Subsequently, we implemented the non-parametric model with time varying coefficients developed by Greenaway-McGrevy and Phillips (2016) to estimate bubbles contagion among European real estate markets. We found evidence of at least one historical bubble in all these countries, with Germany, the Netherlands, Portugal, and Spain currently experiencing a rising bubble. The results also suggest that bubbles are contagious between these real estate markets.

Interdependence dynamics of corporate equity and public real estate markets

PurposeWith growing interdependence between financial markets, the goal of this paper is to examine the dynamic interdependence between corporate equity and public real estate markets for the USA and a select group of seven European developed economies under a cross-country framework in crisis and boom market conditions. Dynamic interdependence is related to four measures of market linkages of “correlation, spillover, connectedness and causality”.Design/methodology/approachThis study adopts a four-step investigation. The authors first estimate “time-varying variance–covariance spillovers and implied correlations” modeled with the bivariate BEKK-MGARCH methods. Second, the methods of Diebold and Yilmaz (2012, 2014) measure the conditional volatility spillover-connectedness effects across the corporate equity and public real estate markets based on a decomposition of the forecast error variance. Third, the authors implement nonlinear bivariate and multivariate causality tests to understand the lead-lag dynamics of the two asset markets' returns, volatilities and net directional volatility connectedness across different sample periods. Finally, the authors conclude the study by providing a portfolio hedging analysis.FindingsThe authors find that corporate equity and public real estate are moderately interdependent to the extent that their diversification benefits increases in the longer term. Moreover, the authors find increased corporate equity-public real estate causal dependence of the market groups of the European and international portfolios during the GFC and INTERCRISIS periods. The nonlinear causality test findings indicate that the joint information of asset markets can be a useful source of prediction for future innovation of market risks. Additionally, policy makers may also be able to employ conditional volatility and volatility connectedness as two other measures to manage market stability in the cross-asset market dependence during highly volatile periods.Research limitations/implicationsOne major take away from this academic research is since international portfolio investors are not only concerned the long-term price relationship but also the correlation structure and volatility spillover-connectedness, the conditional BEKK modeling, generalized risk connectedness analysis and nonlinear causal dependence explorations from this multi-country study can shed fresh light on the nature of market interdependence and magnitude of volatility connectedness effects in a multi-portfolio framework.Practical implicationsThe hedging performance analysis for portfolio diversification and risk management indicates that industrial stocks (“pure” equities) are valuable assets that can improve the hedging performance of a well-diversified corporate equity-public real estate portfolio during crisis periods. For policymakers, the findings provide important information about the nature of causal links and predictability during the crisis and asset-market boom periods. They can then equip with this information to manage and coordinate market stability in cross corporate equity-real estate relationships effectively.Originality/valueAlthough traditional research has in general reported at least a moderate degree of relationship between the two asset markets, investors' knowledge of stock-public real estate market linkage is somewhat inadequate and confine mostly to broad stocks (i.e. stocks that are exposed to public real estate influence) in a single-country context. In this paper, the authors examine the interdependence dynamics in a multi-country (multi-portfolio) context. A clear understanding their changing market relationships in a multi-country context is of crucial importance for portfolio investors, financial institutions and policy makers. Moreover, since the authors use an orthogonal stock market index, the authors allow global investors to understand the potential diversification benefits from stock markets that are beyond the public real estate market under different market conditions.

Hurricane Matthew in 2100: effects of extreme sea level rise scenarios on a highly valued coastal area (Palm Beach, FL, USA)

Sea-level rise represents a severe hazard for populations living within low-elevation coastal zones and is already largely affecting coastal communities worldwide. As sea level continues to rise following unabated greenhouse gas emissions, the exposure of coastal communities to inundation and erosion will increase exponentially. These impacts will be further magnified under extreme storm conditions. In this paper, we focus on one of the most valuable coastal real estate markets globally (Palm Beach, FL). We use XBeach, an open-source hydro and morphodynamic model, to assess the impact of a major tropical cyclone (Hurricane Matthew, 2016) under three different sea-level scenarios. The first scenario (modern sea level) serves as a baseline against which other model runs are evaluated. The other two runs use different 2100 sea-level projections, localized to the study site: (i) IPCC RCP 8.5 (0.83 m by 2100) and (ii) same as (i), but including enhanced Antarctic ice loss (1.62 m by 2100). Our results show that the effective doubling of future sea level under heightened Antarctic ice loss amplifies flow velocity and wave height, leading to a 46% increase in eroded beach volume and the overtopping of coastal protection structures. This further exacerbates the vulnerability of coastal properties on the island, leading to significant increases in parcel inundation.