Journal of Property Investment & Finance
- Emerald Group Publishing Limited
- Publication date:
- Editorial for special issue on infrastructure and real estate
- Guest editorial
- The technological impact on real estate investing: robots vs humans: new applications for organisational and portfolio strategies
Purpose: The goal of this paper is to present a roadmap for real estate operating companies (REOCs) to transform themselves into tech-centric enterprises. Design/methodology/approach: This qualitative approach is based on the impact of technology on physical real estate assets and organisational structures as reviewed in industry and academic literature, professional experience and current property technology (PropTech) applications. Findings: New technologies are rapidly changing how investors, tenants and managers use, invest and finance property. The revolutionary change for the industry will be in its organisational and industry structure, away from the traditional hierarchical-mechanistic form to a virtual open-agile-innovative organisational form. Research limitations/implications: Research limitations come from the lack of real estate companies utilising the hybrid flipped form of organisational structures. Practical implications: Due to the current state of the economy, effects of the pandemic and rapid adoption of new technologies, real estate companies are likely to radically change the way they are organised, how they add value, innovate and their leadership/management style. Social implications: The revolution in real estate technologisation will not come from the application of these technologies but the rapid change in ideological thought and management leadership style and culture. Originality/value: The introduction of artificial intelligence/machine learning (AI/ML), blockchain, virtual reality, tablets, cell phones, applications, 5G, etc. is putting pressure on real estate organisations to change. These changes are long overdue and the future, modern real estate company will take a hybrid PropTech form – a company focussed on delivering high-quality products and services to its clients in real time.
- The dynamics of listed property companies in Indonesia
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.
- International capital movement towards the Spanish real estate sector
Purpose: The purpose of this paper is to examine the determinants that affect international capital flows (ICF) toward the Spanish real estate market over the period 1995 first quarter to 2017 fourth quarter. Design/methodology/approach: VECM methodology is used to analyze time series and panel methods using pooled EGLS regression. Findings: VECM parameter results for construction and real estate activities sectors, quickly suggesting a stable performance of capital flows toward Spanish real estate sector that the short-term fluctuation of foreign investment results contributes to the long-term equilibrium relatively soon. By applying the Monetary theory of Johnson, the model identifies a relevant role of M3 explaining capital flows to real estate, together with the lagged variables of construction and real estate activities capital flows, Spanish real interest rate and Spain’s economic growth rate; they are the significant determinants on capital movement to Spanish real estate sector. Interestingly, Spanish housing prices as an exogenous variable, directly, significantly and negatively affect real estate capital flows in all cases as a way to capture the assets price bubble. Practical implications: Findings highlight reasons affecting capital flows to real estate and construction activities to Spanish sectors which allow capital Funds to take into account those drivers in their investment decisions. Originality/value: This paper is the first attempt to analyze the determinants of ICF to Spanish real estate market; it has a significant meaning for both Spanish economy and international investors.
- Pricing risk and its use in modelling real estate market yields
Purpose: In the light of past financial and economic turmoil, there has been a marked increase in the volatility in real estate markets. This has impacted on the pricing of property assets, partly through market sentiment and particularly concerning risk. It also limits modelling accuracy model accuracy. The purpose of this paper is to create a new variable and model to enhance analysis of what drives real estate yields incorporating market sentiment to risk. Design/methodology/approach: This paper specifically considers the modelling of property pricing within a volatile economic environment. The theoretical context begins by analysing the relationship between property yields and government bonds. The analytical context then moves on to specifically include a measurement of risk which stresses its role and importance in investment markets since the Global Financial Crisis. The model thus incorporates macroeconomic and real estate data, together with an international risk multiplier, which is calculated within the paper. Findings: The paper finds the use of measurements of market sentiment and risk are more powerful tools for modelling yields than previous techniques alone. Research limitations/implications: This is an initial paper outlining the creation of sentiment and risk measurements in the financial market and showing an example of its application to a commercial real estate market. The implication is that this could add a major new explanatory variable to modelling of yields. Practical implications: The paper highlights the importance of risk in the pricing of commercial real estate, over and above normal variables. It highlights how this can help explain over and undershooting of yields within commercial real estate which would be of great importance in the investment world. Originality/value: This paper attempts to explicitly measure market sentiment, pricing of risk and how this impacts real estate pricing.
- The rise of PropTech: emerging industrial technologies and their impact on real estate
Purpose: Industry 4.0 recognizes a broad set of technologies that rapidly redefine industry, including real estate. These broad technologies include the Internet of things (IoT), cloud computing, decision automation, machine learning and artificial intelligence. This paper explores applies Industry 4.0 to commercial real estate, resulting in a framework defined here as Real Estate 4.0, a concept that encompasses fintech and proptech. Design/methodology/approach: This research paper examines Industry 4.0 technology to construct a framework for Real Estate 4.0. We also focus on how the COVID-19 pandemic is accelerating proptech, particularly as it relates to getting employees back into their traditional work environments. Findings: As a research paper, this is not a traditional research project with empirical findings. It is a primer on how the rapidly changing technologies of Industry 4.0 are now disrupting and transforming real estate today into what we are calling Real Estate 4.0. Practical implications: Practitioner insight and future research are informed by a framework for Real Estate 4.0 drawn from the technologies of Industry 4.0. Additional implications are outlined for practical, systemic change as a result of the COVID-19 pandemic within the scope of Real Estate 4.0 technology. Originality/value: This is a combined effort by experts in three contributing disciplines: systems science, planning and real estate. Our intent is to provide a primer for those of us in the latter two fields so that we can embrace the rapidly changing built environment landscape as it adjusts and adapts to a post COVID-19 environment that will be critical to maintain real estate investment values and enhance the real estate user's experience.
- The effectiveness of passive land value capture mechanisms in funding infrastructure
Purpose: This study examines the effectiveness of passive value capture mechanisms as an effective form of mechanisms in funding infrastructure from an Australian perspective. The lukewarm response of active value capture mechanisms such as betterment levies in Australia is also discussed. Design/methodology/approach: A case study of the Sydney Metro City and Southwest (SMCSW) project in Sydney is used to illustrate passive value capture mechanisms. Findings: Unlike many developed countries, passive value capture mechanisms have been adopted in Australia. This approach is an effective form of value capture mechanisms to capture the value uplift to offset the total development cost of the SMCSW project. However, this approach is highly sensitive to property transaction activities that could be affected by the general economic conditions and unprecedented events such as the COVID-19 pandemic. Further, there is a widespread discussion of the efficiency of land tax in New South Wales (NSW) in capturing all properties subject to the value uplift. Consequently, a shift towards a broad-based land tax is recommended in which it would provide a more efficient way of infrastructure funding. Practical implications: Policymakers should consider a broad-based land tax for residential and commercial properties in order to improve the efficiency of passive value capture mechanisms. This also highlights property valuers should play a greater role in the development of broad-based land tax system. Originality/value: Previous studies have extensively demonstrated property value impacts of transit investments; very little research assesses the growth of value capture funding mechanisms, particularly passive value capture mechanisms. Specifically, this paper is the first paper to assess the effectiveness of passive value capture mechanisms.
- Cost overruns and delays in infrastructure projects: the case of Stuttgart 21
Purpose: We investigate causes for the cost overrun and delay of the railway project Stuttgart 21. Besides, we try to forecast the actual costs and completion date at an early stage. Design/methodology/approach: The results of exploratory research show the causes for the cost overrun and delay of Stuttgart 21; we compare our findings with other railway projects. To estimate the costs at an early stage, the reference class forecasting (RCF) model is applied; to estimate the time, we apply an OLS regression. Findings: We find that the following causes are relevant for the cost overrun and delay of Stuttgart 21: scope changes, geological conditions, high risk-taking propensity, extended implementation, price overshoot, conflict of interests and lack of citizens' participation. The current estimated costs are within our 95% confidence interval based on RCF; our time forecast underestimates or substantially overestimates the duration actually required. Research limitations/implications: A limitation of our approach is the low number of comparable projects which are available. Practical implications: The use of hyperbolic function or stepwise exponential discount function can help to give a clearer picture of the costs and benefits. The straightforward use of the RFC for costs and OLS for time should motivate more decision-makers to estimate the actual costs and time which are necessary in the light of the rising demand for democratic participation amongst citizens. Social implications: More realistic estimates can help to reduce the significant distortion at the beginning of infrastructure projects. Originality/value: We are among the first who use the RCF to estimate the costs in Germany. Furthermore, the hyperbolic discounting function is added as a further theoretical explanation for cost underestimation.
- A case study of the investment yields of high street banks
Purpose: – Sale-and-leaseback has become an increasingly common approach during the last two decades in the investment of high street banks (banking-halls) in the UK. One measure commonly used in making property investment decisions is the all risks yield (ARY) which is associated with the level of ...
- A comparative computational and behavioral analysis of real estate performance. Anchoring on the post-financial crisis
Purpose: The purpose of this paper is to investigate changes in the commercial real estate market dynamics as a function of and conditional to the shifts in market state-space environment that can influence agent responses. Design/methodology/approach: The analytical design uses a comparative...
- A green profession? A global survey of RICS members and their engagement with the sustainability agenda
Purpose: This study seeks to provide a review of the background and context to the engagement of RICS members with the sustainability agenda, and to examine the extent to which the surveying profession uses relevant information, tools and techniques to achieve the key objectives of sustainable...
- A new evaluation procedure in real estate projects
Purpose: The main purpose of this paper is the formulation of an integrated procedure for the evaluation of real estate investments. Design/methodology/approach: The main methods for evaluation of real estate investments are presented initially. The paper analyses both the academic and the...
- A post-global financial crisis (GFC) framework for strategic planning, assessment and management decision making for US sustainable commercial real estate
Purpose: The purpose of this paper is to understand both the facts and the values associated with the breadth of issues, and the principles related to sustainable real estate for institutional investors. Sustainable real estate is a growing sector within the commercial real estate industry, and yet,...
- A “family of cycles” – major and auxiliary business cycles
Purpose: – The paper aims to discuss the major and auxiliary types of cycles found in the literature. Design/methodology/approach: – The existence of cycles within economy and its sub-sectors has been studied for a number of years. In the wake of the recent cyclical downturn, interest in cycles...
- Accounting for leases: telling it how it is
Purpose: The purpose of this paper is to express a viewpoint in respect of proposed changes to accounting for leases. It aims to present a summary of accounting principles and behaviours in the property leasing markets. Design/methodology/approach: The paper reflects analysis by the author...
- An analysis of the long‐run impact of fixed income and equity market performance on Australian and UK securitised property markets
Purpose: Given the mixed findings in the literature, this paper aims to re‐examine the relationship that the securitised property market has with both the fixed income and general stock markets in the UK and Australia from July 1998 to June 2006. Design/methodology/approach: The base methodology...
- An assessment of property investment vehicles with particular reference to German funds
Property investment vehicles are reviewed from a literature perspective drawing upon the experience of real estate investment trusts in the USA and contrasting this with European examples. The primary focus of the paper is upon German funds, using survey evidence to evaluate their structural...
- An econometric analysis of Shanghai office rents
Purpose: Shanghai is the most important economic centre in China. It also has the nation's largest modern office market in terms of floorspace and investment values. However, as with office markets in other cities and countries, the Shanghai market displays rental volatility. This paper aims to...