International Real Estate Review

We develop an automated valuation model (AVM) for the residential real estate market by leveraging stacked generalization and a comparable market analysis. Specifically, we combine four novel ensemble learning methods with a repeat sales method and tailor the data selection for each value estimate. We calibrate and evaluate the model for the residential real estate market in Oslo by producing out-of-sample estimates for the value of 1,979 dwellings sold in the first quarter of 2018. Our novel approach of using stacked generalization achieves a median absolute percentage error of 5.4%, and more than 96% of the dwellings are estimated within 20% of their actual sales price. A comparison of the valuation accuracy of our AVM to that of the local estate agents in Oslo generally demonstrates its viability as a valuation tool. However, in stable market phases, the machine falls short of human capability.

International Real Estate Review

Our paper aims to examine the healthy building adoption patterns by first asking two critical questions that are relevant to the market conditions: What are healthy buildings? What is their financial value for tenants and owners? We then synthesize the existing academic and industry literature. We find some early evidence of a real estate price premium for specific indoor environment quality (IEQ) and design features. In terms of health-focused building certification systems (BCSs), no empirical and quantitative research has been done on the financial performance of healthy buildings, except for theoretical models. We then proceed to conduct interviews with executives of 15 real estate corporations across the globe to understand the perspectives of real estate owner operators and their strategies for this emerging market. The interviews results confirm that the scarcity of empirical evidence that links healthy building attributes to financial returns inhibits the adoption of healthy buildings in mainstream designs. Moreover, differences in the adoption patterns of healthy buildings are due to the building ownership structure at the firm level, tenants, end-users and building conditions. The strategies of firms in pursuing a healthy building range from risk mitigation to proactive pursuit of new growth opportunities. Private equity funds and real estate investment trust (REIT) firms tend to focus on risk mitigation, while direct real estate investment firms are more likely to carry out the latter to position themselves as a leader within the real estate industry.

International Real Estate Review

Ambrose et al. (2007) find significant evidence of information spillover effects between index real estate investment trusts (REITs) and nonindex REITs in the US markets using the inclusion of REITs into the S&P general market indices in an event study. This study, however, examines the effects of REIT index inclusion events by using non-index real estate operating company (REOC) returns in the US and Singapore. The study finds that REOC returns are more correlated with the general market index returns after REIT index inclusion events, but the spillover effects are smaller for REOCs in Singapore. The spillover effects of the REIT inclusion events are larger on non-index REITs than non-index REOCs in the US. When examining REIT inclusion events in Singapore, we find evidence of increases in betas only in the REIT market, but the changes in REOC betas are insignificant. However, we find that the REIT index inclusions significantly reduce the systematic risks of REOCs that sponsor the index REITs.

International Real Estate Review

Using a non-causality approach based on the conventional approach of Fama and Schwert (1977), cointegration method in Johansen (1988), and autoregressive distributed lag (ARDL) cointegration technique in Pesaran et al. (2001) and Granger et al. (2000), this study examines the inflation hedging effectiveness of residential property in three of the largest emerging market (EM) economies: China, India and Russia. While the results of the Fama and Schwert (1977) regression indicate that residential properties in China and Russia provide a short-term hedge against expected inflation, this is not the case for those in India against both expected and unexpected inflation. Consistent with the results of the developed economies, the Johansen and ARDL cointegration results provide strong evidence to support the hypothesis that inflation and the residential properties in the three largest EM economies are cointegrated. This implies that the residential properties in these three countries provide a long-term hedge for inflation. In addition, the causality results show evidence that inflation has a lead effect on residential property prices in India over the long run. The empirical results of the cointegration tests confirm that residential properties could be considered as a reliable hedge against inflation for EMs in the long run and suggest that investors should overweigh their investment in residential property assets during periods of persistent inflation in EMs.

International Real Estate Review

This paper identifies the impact of macroeconomic determinants of commercial property investment and development markets in Australia. A Hodrick-Prescott (HP) filter is used to filter the cyclical components of commercial property investment and development time series. In order to identify the long-run relationships and short-run dynamics, coupled with causality between these factors and property cycles, the investment and development property cycles are analyed with respect to the movement of nine macroeconomic factors by using time series data from 1987 to 2016. The empirical results suggest that the Australian commercial property market is often in an overdemand situation rather than oversupply, which can be explained by the different patterns of the property cycles on the demand and supply sides. Property investment cycles are shorter and more volatile than development cycles at around 8-10 years and more than 20 years, respectively, since there is a larger elasticity of the macroeconomic factors that underlie the investment market with short-term dynamics, while the development cycle is mainly affected by such factors moderately in the long run. Both the investment and development markets are intensively affected by financing related variables rather than market-sentiment and economic-cycle related variables.

International Real Estate Review

This paper is about investigating how different bank liquidity creation activities affect housing markets. Using data of 401 metropolitan statistical areas/metropolitan statistical area divisions (MSAs/MSADs) of the U.S. between 1990 and 2018, we show that not all bank liquidity creation activities boost the housing markets. In particular, unlike assetside and off- balance sheet liquidity creations, funding-side liquidity creation dampens housing markets. The relationships between liquidity creation activities and housing markets are stronger in regions with inelastic house supply, but flip when banks face external liquidity shocks. We also find that housing markets dominated by large banks are more sensitive to off-balance sheet liquidity creation activities. Finally, as expected, asset-side and off-balance sheet liquidity creations boost housing markets by driving house prices away from fundamental values. Our results offer a more thorough explanation of how bank liquidity creation fuels the momentum of housing markets.

International Real Estate Review

Developers make decisions around timing and intensity simultaneously when exercising a development option. Built on the early real options models, we allow the demand shock and the cost functions to be dependent on the intensity of real estate development. Based on a set of input parameters, the numerical results show that demand uncertainty delays development activities, and the rental elasticity to density change has an inverse effect on the deferment option values. In a market where the intensity impact on rental income is small, development activities are likely to be curtailed when market volatility increases. More empirical tests could be conducted on whether more smaller-scale projects are triggered in down markets relative to up markets.

International Real Estate Review

Social housing projects often face the “not-in-my-back-yard” (NIMBY) backlash from the local community who oppose and reject their construction. Considering the prevalence of NIMBY, this study examines the factors that influence the attitude of the public towards social housing construction under high home ownership rates. We conduct an ordered logistic regression analysis by using 14,275 responses from the 2015 Residential Status Survey in Taiwan. The results show some interesting findings. First, home ownership and families with a child under 18 are two of the most influential variables that have significantly negative influences on the approval of social housing construction. Renters and people with physical and mental disabilities are however more supportive of social housing. Secondly, residents in buildings with high development intensity are very supportive of the construction of social housing. Thirdly, satisfaction with neighborhood environment has a positive impact on social housing approval. Finally, residents who live in dense cities tend to support the construction of social housing. However, residents who live in satellite cities of a metropolitan region are less supportive. The results of this study reveal a regional difference in the approval of residents for social housing construction.

International Real Estate Review

Financial globalization has enabled investors to allocate some of their portfolio assets to foreign countries and alternative assets. This environment has also created an increase in investment in international real estate especially in the emerging markets. In this study, we investigate whether foreign real estate investors outperform domestic investors after controlling for property specific characteristics. Using property level transaction data of Korea from 2003 to 2016, we also examine the characteristics of commercial real estate investment associated with the probability of an acquirer being a foreign investor versus a domestic investor. The binary and multinomial probability models are used to test our research hypothesis and the structural equation model is applied to find the determinants of the internal rate of return. The result reveals foreign investors perform better than domestic investors in a holding period analysis. Furthermore, the findings support that foreign direct and indirect real estate investments are statistically significant to the age of the building, corporate bond and exchange rates, growth domestic product growth, and the equity market movement in the domestic market.

International Real Estate Review

We apply the dynamic Gordon growth model to the Hong Kong real estate market to analyze quarterly data on four kinds of real estate—housing, office, retail, and factory properties—from 1999 to 2020. We find that factories have the highest total returns among the four types of real estate, and also a larger Sharpe ratio. The total returns of these four kinds of real estate are highly correlated. The results of an autoregressive distributed lag model show that the gross domestic product growth rate is the key determinant of real estate returns, while changes in foreign direct investment also influence housing and retail returns. The expected value of the risk-free rate is the key factor that determines the rent-price ratio. The decline in the risk-free rate in Hong Kong is the main reason that the real estate price-rent ratio has increased from 20 to 40 in the last twenty years. Our research represents an early contribution that compares the performance of housing and commercial real estate at the city level, with both types of real estate having similar determinants. Finally, we find that the fall in risk-free interest rates worsens housing affordability in Hong Kong.