Superior Real Estate Investment Performance: Enigma or Illusion? A Critical Review of the Literature

Liu, Crocker H.; Grissom, Terry; Hartzell, David

doi:10.1007/978-94-009-0367-8_5

Cited by 5 publications

(4 citation statements)

References 54 publications

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“…These studies include Kuhle et al (1986), Firstenberg et al (1988) Asian real estate companies and Sagalyn (1990), Chan et al (1990), Glascock (1991). Liu et al (1995) suggest in a critical review of the literature on real estate investment performance that any superior real estate performance observed might be an illusion arising from an omission of certain fundamental factors in the estimates of risk. In an international setting, Ling and Naranjo (2002), Hamelink and Hoesli (2002) and Bond et al (2003) have made consistent observations that there are little abnormal returns to be earned in international real estate securities.…”

Section: Brief Literaturementioning

confidence: 99%

Do Asian real estate companies add value to investment portfolio?

Liow

Adair

2009

Journal of Property Investment &Amp; Finance

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Purpose -The purpose of this paper is to examine the role of Asian real estate companies with regard to their "value-added" performance and portfolio diversification benefits in Asian mixed-asset portfolios, as well as in international real estate securities portfolios over 1996-2005. Design/methodology/approach -First the risk-return performance for all 13 Asian as well as the US and UK real estate securities markets is compared. For each country, next the correlation profiles between real estate, common stock, bonds and cash are assessed. The value-add benefits of Asian real estate securities in an unconstrained and constrained mixed asset portfolio are then assessed in relation to portfolio return, risk and terminal wealth. Finally, the paper explores whether there are benefits derived from international diversification with a universe of Asian real estate securities from the perspectives of the US and UK investors. Findings -It was found that, whilst there is little evidence of diversification benefits and superior risk-adjusted performance of Asian real estate companies in Asian mixed-asset portfolios, diversification into Asian real estate stocks can provide positive portfolio implications for international investors. Thus investing in Asian real estate securities portfolios rather than investing in Asian mixed-asset portfolios may be seen to be the more effective diversification strategy over this period. Originality/value -The study has provided some interesting and important insights into the dynamics and performance of Asian real estate securities. With an increased emphasis on international property investment and as the regional upturn becomes more evident, Asian real estate companies potentially provide an important real estate investment opportunity for international property fund mangers.

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Section: Brief Literaturementioning

confidence: 99%

Do Asian real estate companies add value to investment portfolio?

Liow

Adair

2009

Journal of Property Investment &Amp; Finance

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“…Nevertheless, outperformance of listed PCs over stocks is always a matter of dispute. Liu et al (1995) even argued that any superior property performance observed might be an illusion due to omitting some fundamental estimated risk factors.…”

Section: Indonesian Listed Pcs’ Performance Analysismentioning

confidence: 99%

The dynamics of listed property companies in Indonesia

Nguyen

Razali

2020

JPIF

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Purpose As an asset class, listed property companies (PCs) in the emerging Asian markets have taken on increased significance in recent years. Investors have seen Indonesian real estate investment trusts (REITs) being regulated to become a property investment vehicle in 2007. This sees macro-environment investment in the Indonesian property market taking off to a higher level regionally. In the background, Indonesian listed PCs maintain as one of the major investment vehicles for local and international investors. It has also been the subject of investment for REITs and property investment funds in Indonesia. The purpose of this paper is to assess the dynamics of risk-adjusted performances and portfolio diversification benefits of listed PCs in a mixed-asset portfolio context in Indonesia, from July 2006 to December 2018. The sub-periods of pre-global financial crisis (GFC), GFC and post-GFC of listed PCs is also assessed. Design/methodology/approach Using monthly total returns, the risk-adjusted performance and portfolio diversification benefits of listed PCs from July 2006 to December 2018 are assessed, with extended efficient frontiers and asset allocation diagrams used to assess the role of listed PCs in a mixed-asset portfolio. Sub-period analyses are conducted to assess the post-GFC recovery of listed PCs. Findings Listed PCs delivered higher returns but carried higher risks compared to stocks before the GFC, with bonds having both the lowest returns and risks. The impact of the GFC was highest for Indonesian PCs compared to stocks, where properties did not deliver strong risk-adjusted returns. Notwithstanding the poor risk-adjusted performance, Indonesian PCs had low correlations with stocks and bonds, suggesting some level of diversification potential for stock and bond investors. Stocks outperformed listed PCs across the sub-periods and the full period. Over the post-GFC period, both stocks and listed PCs recovered from the crisis, with stocks turning around stronger. This analysis shows a prolonged recovering and slow bouncing adjustment of listed PCs from the economic changes. This research suggests selected listed PCs may be the outperformers, and, a future contract as a hedge form for listed PC to be implemented. Research limitations/implications The use of the indices of Standard & Poor’s Indonesian property total return (for listed PCs) are as follows: MSCI Indonesia total return (for stocks), Indonesia’s ten-year bond’s total return (for bonds) and Indonesia’s three-month bill total return (for cash). This is used to study the Indonesian listed PCs and may have aggregation effects in its underperformance and therefore drawing a negative outcome. The results may reflect the common fact that the majority of listed PCs in Indonesia are property developers, which also sees underperformances in other emerging country markets. Practical implications Listed PCs have been under increasingly adjusted and positively adapted regulations from the Indonesian Government over the post-GFC period. Therefore, in order to attract interest from international investors in property investment in Indonesia, listed PCs need stronger and more efficiently adapted regulations to a competitive level of respective regulations in the region and globally. Notwithstanding the poor performance in the transitional stage, Indonesian listed PCs bring some diversification benefits to local investors who are able to pick the outperformed invested PCs at the right time. Of the on-going concerns, international investors have no restrictions on holding listed PCs in the Indonesian stock market. This provides room for improvement in business performance in listed PCs as a result of regional/global competition and international management being involved. The present study delivers awareness to investors, researchers as well as policymakers on the Indonesian property market. Originality/value This paper is the first published to present a country profile of significant property vehicles (commercial property, listed PCs and REITs). It also presents empirical research analysis of the risk-adjusted performance of listed PCs and its dynamic role in a local investors’ perspective across the pre-GFC, GFC, post-GFC periods. Given the significance of listed PCs in Asia, this research highlights more information for opportunities and on-going property investment issues in Indonesia.

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“…Sagalyn (1990), for example, came to the conclusion that REITs offered superior returns, indicating that real estate is a good diversification tool when included in investment portfolios. Studies like Titman and Wanga (1986), Chan et al (1990), Howe and Shilling (1990), Kapplan and Schwartz (1995), Redman and Manakyan (1995), and Sanders (1997) failed to detect any evidence of superior return and attributed the findings in Sagalyn (1990) to an illusion arising from an omission of certain fundamental factors in the estimates of risk (Liu et al , 1995). On the performance of real estate firms and real estate related companies, Glascock (1991) and subsequently Glascock and Davidson (1995) observed that real estate firms under‐performed the market on a nominal and risk adjusted basis.…”

Section: Literature Reviewmentioning

confidence: 99%

Real estate security and other investment assets

Amidu

Tajudeen

Bashar

et al. 2008

Journal of Property Investment &Amp; Finance

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PurposeQuite a substantial number of academic papers have examined the performance of both direct and indirect real estate relative to other investment assets. While these studies are valuable in the field of real estate investment performance measurements, a gap still exist in the literature on the comparative performance of investment assets in the various sectors of the stock markets of most emerging economies. This paper aims to fill the gap by providing analysis of the historical performance of real estate and other securities in the Nigerian capital market.Design/methodology/approachAnnual open and closing market prices of shares and dividend of sampled listed companies in addition to data on all share index (ASI), consumer price index (CPI) and yield on 90‐days T‐Bill were obtained for the period 1999‐2005. These were then analysed using descriptive, risk‐adjusted measures and regression models.FindingsThe empirical evidence suggests that while real estate outperformed the market on a nominal basis, it underperformed the market stock on a risk‐adjusted basis over the time period of analysis. Unexpectedly, real estate security did not provide a good protection against inflation and is also uncorrelated with the stock market.Originality/valueThis paper provides empirical evidence of the investment characteristic of indirect real estate investment in Nigeria. The results suggest that real estate security does not after all provide a good substitute to direct real estate investment.

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Superior Real Estate Investment Performance: Enigma or Illusion? A Critical Review of the Literature

Cited by 5 publications

References 54 publications

Do Asian real estate companies add value to investment portfolio?

Do Asian real estate companies add value to investment portfolio?

The dynamics of listed property companies in Indonesia

Real estate security and other investment assets

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