International Direct Real Estate Investment: A Review of the Literature

Abstract

This paper provides a critical review of research on international direct real estate investment issues. To date, no review article has explored the various findings of studies completed on the benefits of international real estate diversification. In the past 10 years, the quantity and variety of work have increased dramatically. The paper is organised by how investing in a real estate asset is analysed: in a mixed-asset portfolio context or a real-estate-only portfolio context. A fourth section focuses on research that has explored currency risk, one of the prevailing risks associated with international investing. The last section provides conclusions about the research and offers ideas for future research in this growing area of real estate investment.

Long-Term Benefits from Investing in International Real Estate

“…Beside investments in raw materials like oil, precious and industrial metals, real estate investments show low correlation with stocks and bonds and therefore, have appropriate characteristics contributing to portfolio optimization. A summary of former research on the benefits from investing in real estate is presented by Sirmans and Worzala (2003) and Worzala and Sirmans (2003). Further analyses were conducted by Steinert and Crowe (2001), Conover et al (2002), Bond et al (2003), Brounen and Eichholtz (2003), Lee (2005), Lee and Stevenson (2005), Waggle and Agrrawal (2006), Cheng and Roulac (2007), Idzorek et al (2007), Jin et al (2007), Fugazza et al (2008), Yat-Hung et al (2008), and Sebastian and Sturm (2009).…”

Untitled

“…Unlike other types of foreign capital, FIRE is the most difficult form of foreign capital to be disentangled into short and long-term or into FDI or FPI. This point has been highlighted by Jiang, Chen and Isaac (1998), Sirmans and Worzala (2003) and He, Wang and Cheng (2011), who argued that although foreign investment in real estate is fully in the form of FDI, the objective remains the same -to earn higher returns to unit capital.…”

Optimal Portfolio Allocation among REITs, Stocks, and Long-Term Bonds: An Empirical Analysis of US Financial Markets

“…A comprehensive survey of literature regarding diversification benefits of mixed portfolio of stock, bonds, and real estate is summarized in [2,3]. Based on US financial market research, the literature establishes the benefit of diversification using real estate assets based on correlation analysis without considering the dynamics of correlations over time.…”