Property investment decision making by Australian REITs
| Date | 29 July 2014 |
| Pages | 456-473 |
| Published date | 29 July 2014 |
| DOI | https://doi.org/10.1108/JPIF-04-2014-0025 |
| Author | David Parker |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
Property investment decision
making by Australian REITs
David Parker
University of South Australia, Adelaide, Australia
Abstract
Purpose – The purpose of this paper is to investigate property investment decision making by
Australian REITs.
Design/methodology/approach – Through an extensive literature review, a normative model of the
property investment decision-making process is proposed. Based on semi-structured interviews with
senior Australian REIT decision makers, a descriptive model of the property investment decision-making
process by Australian REITsi sd eveloped. The normative model and descriptive model are compared and
a prescriptive model of the Australian REIT property investment decision-making process proposed.
Findings – With the four stage, 20-step process proposed in the normative model found to be
generally supported by the descriptive model developed, this may potentially comprise an effective
prescriptive model for the Australian REIT property investment decision-making process.
Research limitations/implications – Further research is required to investigate if the prescriptive
model is generalisable across other property investment decision-making groups or over time and
whether it may lead to “good” decisions.
Practical implications – The prescriptive model proposed may contribute consistency and
transparency to the decision-making process, if adopted by Australian REITs, potentially leading
to better decisions.
Social implications – Greater consistency and transparency in property investment decision making by
Australian REITsmay lead to the optimal allocation of capital and greater investor confidence in the sector.
Originality/value – The findings comprise the first prescriptive model of the Australian REIT
property investment decision-making process, forming a basis for comparative investigation of that
process adopted by other property investment decision-making groups.
Keywords Australia, Decision making, Real estate, Property, Property investment, REIT,
Real estate investment trust
Paper type Research paper
Introduction
The Australian REIT secto r is substantial, comprising 45 REITs with a market
capitalisation of h71.76 million at July 2012, being 9.36 per cent of the global REIT
market (Farrell, 2012). The recent performance of the Australian REIT sector has,
however, been tumultuous, rising to an historic high preceding the onset of the global
financial crisis (GFC) during which the sector fell approximately 75 per cent to a nadir
around March 2009, before steadily recovering but remaining around 60 per cent below
its pre GFC zenith, as shown in Figure 1.
The purpose of this paper is to investigate property investment decision making
by Australian REITs, with the performance of Australian REITs during the GFC
appearing to be consistent with the observation by Roulac (1994) two decades ago that:
Extraordinary financial losses and market disruption in the late 1980s and early 1990s are
eloquent, if damning, testimony to the proposition that the quality of many real estate
decisions is less than distinguished.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1463-578X.htm
Received April 2014
Accepted May 2014
Journal of Property Investment &
Finance
Vol. 32 No. 5, 2014
pp. 456-473
rEmeraldGroup PublishingLimited
1463-578X
DOI 10.1108/JPIF-04-2014-0025
The author acknowledges the valuable feedback on this p aper provided by delegates at the
European, American, Asian and Pacific Rim Real Estate Society conferences.
456
JPIF
32,5
At its most basic, the property investment decision-makin g process may be
conceptualised as being that by which $1 of unitholder capital is converted into $1 of
investment property. French (1996) identified three forms of decision model, being:
.normative analysis – models which suggest how we should decide;
.descriptive analysis – models which purpor t to describe how we do decide; and
.prescriptive analysis – models which use normative models to guide the decision
maker within other limiting cognitive parameters.
French (2001) considered the evolution of the normative model through the reflection of
parameters that might have influenced previously observed decisions as described in
the descriptive model to develop the prescriptive model, noting that the prescriptive
model can be described as an application of normative ideas within the context of the
findings of descriptive decision studies that lead decision makers to a “good” decision
rule.
Following French (2001), it is proposed to undertake a review of literature
concerning property investment decision making generally and REIT prope rty
investment decision making specifically in order to identify existing and to develop a
proposed normative model of property investment decision making.
It is then proposed to survey Australian REIT managers to identify how property
investment decisions are made by Australian REITs in order to develop a descriptive
model of property investment decision making by REITs.
The proposed normative and descriptive models of proper ty investment decision
making by REIT’s may then be compared in order to develop a prescriptive model of
property investment decision making for REITs.
Finally, conclusions will be drawn concerning the property investment decision-
making process by Australian REITs and areas for further research identified.
Literature review
Following French (2001), it is proposed to undertake a review of literature concerning
property investment decision making generally and REIT property investment
decision making specifically in order to identify existing and to develop a proposed
normative model of how property investment decisions should be made.
300
600
900
1,200
1,500
1,800
2,100
2,400
2,700
5.4.07
29.6.07
21.7.07
14.12.07
7.3.08
30.5.08
22.8.08
14.11.08
6.2.09
1.5.09
17.7.09
9.10.09
30.12.09
26.3.10
18.6.10
10.9.10
3.12.10
25.2.11
20.5.11
5.8.11
28.10.11
20.1.12
13.4.12
6.7.12
28.9.12
20.12.12
22.3.13
14.6.13
6.9.13
29.11.13
28.2.14
Source: Author
Figure 1.
ASX AREIT index,
March 2007-March 2014
457
Decision making
by Australian
REITs
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