This paper presents a Listed Real Estate Investment Valuation Model that was developed to investigate the movement in indirect real estate investment through the consideration of the underlying assets of property loan stock companies. Specific reference is given to information that is made available to shareholders by way of annual financial statements in order to determine the extent to which shareholders can make investment decisions based on this information. The study enhances the knowledge of direct vs. indirect real estate investment behaviour and provides more insight into price discovery in the property sector.Key words: valuation models, indirect property, listed property, price discovery JEL: G120, 170, 300 320
IntroductionStock-market-listed property investment funds bring the two different investment classes, i.e. the stocks and bond market and the property market, together as comparable entities. Previous literature has shown that price discovery takes place in the listed property market, which might be an indication of market activity also in the direct property market. The objective of this paper is to develop a model that can measure the relationship between the share prices of Property Loan Stock (PLS) companies and their underlying assets, by investigating specifically the information provided to shareholders by means of annual financial statements.In order to develop such a model, the stock exchange listed PLS companies in South Africa are taken as case study, with the aim to formalise the Listed Real Estate Investment Valuation Model (LREIV model).
Null hypothesis and alternative hypothesisIn order to formalise the LREIV model, it is necessary to consider the null hypothesis, which could be stated as follows: