Journal of Property Investment & Finance

Publisher:: Emerald Group Publishing Limited
Publication date:: 2021-02-01

ISBN:: 1463-578X

Issue Number

No. 43-1, February - February - December - October - October - August - June - May 2024

Latest documents

Editorial: Research impact of the real estate journals
Practice Briefing: The inception and preliminary performance analysis of REITs in the Kingdom of Saudi Arabia
Purpose: The Saudi REIT market’s introduction in 2016 was part of the Kingdom of Saudi Arabia’s Vision 2030 master plan to diversify the country's sources of revenue and reform its financial sector. Despite the Saudi REIT market’s nascent state, it has experienced significant growth in a short period of time, being the largest REIT market in MENA. Saudi REITs are designed using well-established global REIT standards to facilitate efficient capital influx into commercial property investment opportunities in Saudi Arabia. The core aim of this paper is to highlight the development of Saudi REITs and empirically assess their performance over the period from December 2018 to December 2023. Design/methodology/approach: Using monthly total returns in local currency (SAR), the risk-adjusted performance and portfolio diversification attributes of Saudi REITs are assessed. A series of optimal portfolios are constructed to identify the potential added-value role of Saudi REITs in a multi-asset framework. Findings: Whilst Saudi REITs’ average annual return performance is lower than that of stocks, their annual returns are delivered with less volatility, thus giving a competitive overall risk-adjusted performance against other asset classes. This is a testament to Saudi REITs’ higher income return performance due to the fiscal-efficient framework. Further, when Saudi REITs are introduced in a stocks-bonds portfolio, they are able to improve the portfolio’s overall return whilst reducing the volatility, with their allocation in the asset mix observed to effectively scale throughout the portfolio risk-return spectrum. Practical implications: Saudi REITs are an emerging investment opportunity for investors seeking exposure in a relatively stable and fast-growing MENA property market. As Saudi Arabia makes continuous reforms to improve the accessibility and transparency of its commercial property market, Saudi REITs are the most effective way to date for domestic and overseas investors to obtain exposure to the Kingdom’s property investment opportunities. Importantly, the encouraging preliminary results as identified in this paper provide valuable insight into the potential trajectory of Saudi REITs, given their significant contributing role to achieve the strategic objectives of Vision 2030. Originality/value: This paper is the first empirical investigation that provides a preliminary performance validation of Saudi REITs as a listed pathway to commercial property exposure in Saudi Arabia. This study provides empirical evidence that enables more informed and practical decision-making in property investment, particularly in understanding the strategic importance of Saudi REITs within an investment portfolio.
Real Estate Insights: The impact of amenities on residential rents – exploring the urban rent premium in Berlin’s vibrant community hubs
Purpose: Integrating amenity scoring into real estate investment strategies represents an innovative approach. The case study focuses on the impact of amenities on residential rents, with Berlin serving as an example of a tight rental market and a dynamic city. The scoring and modeling approach offers a scalable framework for identifying high-potential investment opportunities. Design/methodology/approach: The PATRIZIA Amenities Basic-Living-Need Scores© (BLNs) were developed to measure a location’s attractiveness based on the availability and quality of amenities. An AI-driven scoring algorithm takes the quality and quantity of all available amenities into account. The higher the scores, the better and more diversified is a location supplied with amenities for residential living. A generalized additive model is fitted to assess the strength and direction of impact of the BLNs on residential rents while controlling for other factors such as property and locational characteristics. Findings: The results indicate that amenities are a fundamental determinant of rental values and tenant satisfaction, providing investors with actionable insights to maximize returns in competitive urban markets. Focusing on areas with high BLN scores can lead to better investment outcomes due to higher rental premiums associated with these locations. The study also highlights the need to run a detailed location analysis to avoid the pitfall of amenities congestion. Practical implications: The results indicate that amenities are a fundamental determinant of rental values and tenant satisfaction, providing investors with actionable insights to maximize returns in competitive urban markets. By identifying and accounting for regional peculiarities, investors can make data-driven decisions that align with local tenant preferences and market conditions. Originality/value: The PATRIZIA Amenities Basic-Living-Need Scores© are calculated via an AI-driven, scalable algorithm and were developed to measure a location’s attractiveness in relation to diverse areas of residential living. This research is pivotal as it empirically validates the utility of amenity scoring in optimizing real estate investment strategies.
Editorial: Property valuation – Pellucidity is apparent
Inflation hedging: a comparative wavelet quantile correlation analysis of real estate and alternative assets
Purpose: Conducting an analysis spanning from 2000 to 2023, this research evaluates the effectiveness of real estate assets in hedging against global and energy inflation, benchmarked against other compelling investment options such as oil, gold, silver and stocks. Design/methodology/approach: This study employs the wavelet quantile correlation (WQC) methodology. The latter sheds light on dynamic market interactions by scrutinising dependency structures across multiple time scales and also by capturing tail dependence. The adaptability of the wavelet transform, across a spectrum of frequencies, emerges as an indispensable tool for studying time series while also unravelling relationships among variables across diverse quantiles. Findings: The findings reveal that the response to inflationary pressures is contingent upon the asset class, investment horizon and type of inflation under consideration. While precious metals demonstrate effectiveness over short-term horizons, French-listed real estate exhibits compelling inflation-hedging characteristics as the investment horizon extends. Oil emerges as an unequivocal hedge against both global and energy inflation. Practical implications: To counteract the effects of inflation, investors and households may feel compelled to refine their investment strategies, opting to bolster their portfolios with instruments proven to serve as reliable safeguards against inflation, as indicated by this study. Originality/value: In conjunction with a surge in inflationary pressures, this study delves into the hedging capabilities of assets, exploring their efficacy not only across short- and long-term investment horizons but also within diverse scenarios characterized by fluctuating levels of global and energy-related inflation. To the best of our knowledge, no previous article employed the WQC technique to evaluate the inflation-hedging nexus.
Barriers in achieving quality valuations: the New Zealand perspective
Purpose: To inform ways of improving valuation quality, this study seeks to understand the lived experiences of practising valuers regarding the challenges of conducting quality valuations. Design/methodology/approach: This study adopts a qualitative strategy involving 19 semi-structured interviews with valuers in New Zealand. The interview data were analysed using progressive comparative analysis and the constant comparative method, which yielded comprehensive and well-founded conclusions. Findings: The data analysis revealed several challenges that hinder the improvement and maintenance of valuation quality. These challenges were categorised into nine key areas, covering a wide range of issues, including a wide scope of practice, lack of experienced valuers, inappropriate use of graduate valuers, stakeholder expectations, access to relevant information, differing approaches, valuer attitudes and dissatisfaction with compensation. Practical implications: The findings of this study have the potential to inform the valuation profession and other stakeholders about the challenges that practising valuers face in conducting quality valuations, which can ultimately lead to improvements in the valuation process. Originality/value: This study contributes to the valuation literature, by highlighting the lived experiences of valuers in terms of the potential and challenges pertaining to valuation quality improvement. This has been an area that has received limited attention in the past, and an understanding of these issues has the potential to approach valuation quality in new and innovative ways.
The relative importance of economic policy uncertainty and geopolitical risk on U.S. REITs returns
Purpose: Our aim in this study is to investigate the relative importance of the economic policy uncertainty and of the geopolitical risk on U.S. REITs (Real Estate Investment Trusts) returns with a special focus on the different real estate sectors. Design/methodology/approach: We use an augmented Fama-French (1993)’s asset pricing model, including economic policy uncertainty indices (EPU), introduced by Baker et al. (2016), and geopolitical risk indices (GPR) recently developed by Caldara and Iacoviello (2022), to price the potential risk factors for U.S. Nareit indices returns. To obtain robust economic results, we correct for the problems of errors-in-variables in linear asset pricing models; we advocate the use of higher moments estimators as instruments in a generalized method of moments (GMM) framework. Findings: Our results report that economic policy uncertainty (EPU), and geopolitical risk (GPR) are priced for the different Nareit sectors for the last three decades. The GPR index stands as a relevant risk factor. The coefficient estimates are low compared to Fama-French risk factors. They are higher for Shopping Centers, Retail and Region Malls and lower for Health Care and Lodging/Resorts. EPU indices are also priced and less statistically significant. Health Care sector, followed by Shopping Centers and Retail are the most policy-sensitive sectors. Practical implications: In their “2023–2024 Top Ten Issues Affecting Real Estate” “political unrest and global economic health” is ranked 1 issue by the Counselors of Real Estate. Our results report that economic policy uncertainty and geopolitical risk are priced for the different Nareit sectors. They suggest implications for investors, insurers, bankers, policymakers and other stakeholders. The geopolitical risk index (GPR) stands as a relevant and significant risk factor for REITs returns. Originality/value: Based on parsimonious robust asset pricing models, the results shed a new light on the relative importance of geopolitical risk and economic policy uncertainty in the real estate sector, with a special focus on the different U.S. REITs sectors. They suggest possible implications for investors, insurers, bankers, policymakers and other stakeholders in a context marked by higher uncertainty shocks and geopolitical risks.
Guest editorial: Embracing ESG in valuation: a paradigm shift in the International Valuation Standards
Is there a diversification paradox in real estate investment funds' value?
Purpose: This paper studies diversification and value in the investment portfolios of (non-listed) Real Estate Investment Funds (REIFs) exploring how the value of diversification is captured by the market and by investors (beyond reported valuations). Design/methodology/approach: We apply the Herfindahl-Hirschman Index (HHI) to study the level of concentration versus diversification in the investment portfolios of REIFs (both in terms of segment and geographical diversification). We use a dataset from INREV with data from 62 investment portfolios, with an average of 86 REIFs per portfolio for the period of 2008–2020 (to study segment diversification). We use a second dataset from INREV with data from 30 investment portfolios with an average of 79 REIFs per portfolio for the period of 2005–2020 (to study geographical diversification). We employ a cluster analysis approach to identify common features among the investment funds. Findings: We conclude that (segment diversified) portfolios with higher degrees of leverage exhibit higher income yields, albeit diversification is captured indirectly through asset choices – more diversified portfolios tend to exhibit a stronger risk and return relationship. Also, geographical diversification creates value (more significantly by for the correct combination of countries carefully choosing what different geographies to group in the diversified portfolio). Research limitations/implications: One limitation of our study is that our portfolios are funds of funds, since the available data could not reach the asset detail, but we believe this does not compromise our results. Practical implications: Diversification leads to higher risk-adjusted returns which suggests that properties may be undervalued (market value) in the framework of the Gordon Model, contrary to expectations (regarding investment value). Originality/value: Investors capture the value of diversification differently, suggesting a gap between market value and investment value that can be explored.
Editorial: Basel 3 prudently conservative value for loan origination and monitoring