The long‐term investment performance of Singapore real estate and property stocks
| Pages | 156-174 |
| Date | 01 April 2001 |
| Published date | 01 April 2001 |
| DOI | https://doi.org/10.1108/14635780110383703 |
| Author | Kim Hiang Liow |
| Subject Matter | Property management & built environment |
JPIF
19,2
156
Journal of Property Investment &
Finance, Vol. 19 No. 2, 2001,
pp. 156-174. #MCB University
Press, 1463-578X
Received May 2000
Revised November 2000
ACADEMIC PAPERS
The long-term investment
performance of Singapore real
estate and property stocks
Kim Hiang Liow
Department of Real Estate, National University of Singapore, Singapore
Keywords Financial performance, Real estate, Singapore, Investment
Abstract Examines the investment performance of Singapore real estate and property stocks
over the past 25 years. Evaluations using coefficient of variation (CV), Sharpe index (SI) and
time-varying Jensen abnormal return index (JI) suggest that real estate outperformed property
stocks on a risk-adjusted basis. Results also indicate that risk-adjusted investment performance
for residential properties remained superior to performance for other real estate types and
property stocks. Further analysis using time-varying JI reveals that the excess return performance
of property stocks could differ significantly from that of direct properties, and performance of
property stock led real estate market performance. Finally, the performance implications arising
from the study are evaluated.
Introduction
Much has been written about the roles of direct properties and property stocks
in the structure of a multi-asset portfolio.For example, Venmore-Rowland (1989)
has pointed out that an investor with limited capital may consider the
alternative of investing in propertystocks as means of accessing direct property
exposure without introducing excessive liquidity in his portfolio. With property
stocks, opportunities for portfolio diversification become feasible, hence
minimizing investment risks. On the other hand, direct properties have been
reported to earn excess returns and provide a hedge against inflation (Glascock
and Davidson, 1995). Hence, thecomparison of risk-return performance of direct
properties relative to propertystocks continues to attract attention.
The direct property market in Singapore is delineated broadly into
residential, commercial and industrial markets. These markets have developed
in tandem with the economy. Both the 1970s and 1980s experienced
tremendous growth in the economy, to which commercial and industrial
property developments contributed substantially. This rapid growth has
continued into the mid-1990s, with property prices in the residential, office and
industrial sectors having reached unprecedented peaks. The strong
performance of direct properties has also been translated into higher profits
and better performance return for many property stocks listed on the Singapore
Stock Exchange (SGX). However, government's policy to introduce several
anti-speculation measures at residential properties in May 1996 and the Asian
financial crisis that hit the Singapore economy since July 1997 have caused
prices of different property sectors and property stocks to decline substantially.
The research register for this journal is available at
http://www.mcbup.com/research_registers
The current issue and full text archive of this journal is available at
http://www.emerald-library.com/ft
Academic papers:
Singapore real
estate
157
Real estate is a significant asset of the Singapore economy. The various
property sectors (including property stock) are expected to assume much greater
importance when Singapore is moving on to a knowledge-based economy in the
twenty-firstcentury. In view of many interesting marketdevelopments that have
taken place especially in the 1990s, it is therefore very meaningful to put into
context the relative risk-returnperformance of Singapore equities, real estate and
property stocks over the past 25 years as we march into the next millennium. In
particular,the study undertakes to evaluate time-varying risk-adjusted abnormal
return performance of direct properties and property stocks and their temporal
cross-correlation patterns from the first quarter of 1975 to the fourth quarter of
1999 (1975Q1-1999Q4), the longest time period for which full data sets are
availablefor all the sectors. We developJensen's (1968) abnormalreturn index (JI)
that allows for possible variations in the market risk over time. Such a studyhas
still not beenpursued on Singapore data and ourresults may therefore givesome
further insight into the ongoing debate regarding the risk-adjusted performance
of direct real estate and property stocksin the international context.
Empirical evidence from previous research
There is an extensive literature devoted to investigating the risk-return
characteristics of direct properties relative to other investment assets like
common stocks and bonds (Zerbst and Cambon, 1984). Although there is some
agreement that property has a strategic role in institutional portfolio
diversification, other evidence to date remains inconclusive regarding the
superiority of risk-return performance of direct properties relative to stock
market and other investment types (Sirmans and Sirmans, 1987). Other US
studies such as Titman and Warga (1986), Gyourko and Keim (1992), Kappin
and Schwartz (1995), Glascock and Davidson (1995) and Han and Liang (1995)
examined the return performance of real estate investment trusts and listed real
estate companies relative to stock market and reported mixed findings.
In the Singapore context, Chan and Sng's (1991) pioneering study analysed
the returns on property stocks and direct properties from 1976 to 1988. Direct
properties were found to display high return-low risk relations. However, they
did not investigate the risk-adjusted investment performance of the two
markets. Liow (1997a) provided a long-term examination on the risk-adjusted
performance of Singapore stock market, property stocks, all-properties,
residential, commercial and industrial properties from 1975 to 1995. Three risk-
adjusted performance indicators were included in the study: coefficient of
return, Sharpe index (SI) and traditional JI. Other evidence on individual
property stocks' risk-adjusted performance appears in another study by Liow
(1997b). One key conclusion that emerged from these studies is that the risk-
adjusted performance characteristics of direct properties could be significantly
different from those of property stocks. Further, these studies also provided
some support to the proposition that the long-term performance of property
stocks was closely linked to the direct property market. However, none of the
studies estimated a time-varying abnormal performance measure that
To continue reading
Request your trial