Cap Rate as the Interpretative Variable of the Urban Real Estate Capital Asset: A Comparison of Different Sub-Market Definitions in Palermo, Italy

Abstract

Abstract:Real estate capital is in constant competition with other capital assets due to its different and complementary economic functions such as direct use, productive investment, and speculative investment. These features and the resulting opportunities cannot be easily deduced from direct observation of the real estate markets, so some further insights need to be carried out in order to highlight the relationship between prices, rents and performances. This study aims at providing a multifaceted perspective of a specific urban real estate market to overcome the difficulties arising from opacities and informative asymmetries that hinder the decision of investors, by facilitating the comparison of different options such as capital value, income and performance. Within the mass appraisal approach, the study proposes a methodology for the analysis of the cap rate, intended as the expression of profitability and liquidity of the urban real estate capital asset. The methodology is based on a detailed survey of a sample of the housing market data, collected within a structured database, supported by statistical and territorial analyses of the sample, in order to display the range of cap rates featuring each sub-market, and the related distributions. The methodology is applied to a case study of nearly 1000 properties distributed in a vast urban area of the municipality of Palermo, Italy. The consistency of the relationships between the three variables has been tested with reference to two hypotheses about the sub-market definition, which has been carried out by cluster and by neighbourhood.

Landscape Assessment and Economic Accounting in Wind Farm Programming: Two Cases in Sicily

“…For these purposes, the structured and rich coastal area in the territory of Siracusa, which attracts investments and tourism, with remarkable impacts on the real estate market prices expectations [10,11], differs significantly from the territory of Enna, which is rather introverted and much less rich also from the point of view of wealth capitalized in real estate [12]; its economy, originally focused mainly on the primary (agricultural, mining etc.) sector, is now growing also in the cultural heritage ones and numerous projects aimed at the territorial restructuring are now in progress [13].…”

Life-Cycle Assessment and Monetary Measurements for the Carbon Footprint Reduction of Public Buildings

“…(1) The net present value (NPV), that is the sum of the incoming and outgoing cash flows, that is revenues (R) and costs (C), over a defined time horizon (T), discounted at the discount rate r. NPV is less, equal, or more than the (net) future value (FV) if the discount rate (r) [48,49] is more, equal, or less than 0; NPV is expected to be significantly positive in case of a private player:…”

Housing and the City: A Spatial Analysis of Residential Building Activity and the Socio-Demographic Background in a Mediterranean City, 1990–2017

“…Real estate market segmentation may be achieved by applying cluster techniques that allow identification of homogeneous sub-markets based on specific metrics of building activity [40][41][42][43][44]. Due to its inherent limits, complexity and heterogeneity, urban real estate markets can be segmented into sub-markets by analyzing consistent associations among performances (characteristics) and economic attributes [45][46][47].…”

“…Due to its inherent limits, complexity and heterogeneity, urban real estate markets can be segmented into sub-markets by analyzing consistent associations among performances (characteristics) and economic attributes [45][46][47]. Related to the real estate market, cluster analysis was applied for several purposes, e.g., to represent the relations among real estate prices and urban transformations [40,46,48,49]. In our case, identification of real estate sub-markets based on building activity metrics may provide further information on latent mechanisms of urban growth during economic expansion and recession.…”