Measuring European real estate investment performance: A comparison of different approaches

Book English OPEN
Devaney, Steven (2013)
  • Publisher: University of Reading

The performance of real estate investment markets is difficult to monitor because the constituent assets are heterogeneous, are traded infrequently and do not trade through a central exchange in which prices can be observed. To address this, appraisal based indices have been developed that use the records of owners for whom buildings are regularly re-valued. These indices provide a practical solution to the measurement problem, but have been criticised for understating volatility and not capturing market turning points in a timely manner. This paper evaluates alternative ‘Transaction Linked Indices’ that are estimated using an extension of the hedonic method for index construction and with Investment Property Databank data. The two types of indices are compared over Q4 2001 to Q4 2012 in order to examine whether movements in these indices are consistent. The Transaction Linked Indices show stronger growth and sharper declines than their appraisal based counterparts over the course of the cycle in different European markets and they are typically two to four times more volatile. However, they have some limitations; for instance, only country level indicators can be published in many cases owing to low trading volumes in the period studied.
  • References (22)
    22 references, page 1 of 3

    Clapp, J. M. (1990), “A methodology for constructing vacant land price indices”, Journal of the American Real Estate and Urban Economics Association, Vol. 18 No. 3, pp. 274-293.

    Clapp, J. M. and Giaccotto, C. (1992), “Estimating Price Indices for Residential Property: A Comparison of Repeat Sales and Assessed Value Methods”, Journal of the American Statistical Association, Vol. 87 No. 418, pp. 300-306.

    Clayton, J., Geltner, D. and Hamilton, S. W. (2001), “Smoothing in Commercial Property Valuations: Evidence from Individual Appraisals”, Real Estate Economics, Vol. 29 No. 3, pp. 337-360.

    Crosby, N., Devaney, S. and Law, V. (2011), “Benchmarking and valuation issues in measuring depreciation for European office markets”, Journal of European Real Estate Research, Vol. 4 No. 1, pp. 7-28.

    Crosby, N. and McAllister, P. (2004), 'Deconstructing the Transaction Process: An Analysis of Fund Transaction Data', Working Paper Two, Liquidity in Commercial Property Markets, Investment Property Forum.

    Devaney, S. and Martinez Diaz, R. (2011), “Transaction based indices for the UK commercial real estate market: an exploration using IPD transaction data”, Journal of Property Research, Vol. 28 No. 4, pp. 269-289.

    Dombrow, J., Knight, J. R. and Sirmans, C. F. (1997), “Aggregation Bias in Repeat-Sales Indices”, Journal of Real Estate Finance and Economics, Vol. 14 No. 1, pp. 75-88.

    Fisher, J., Gatzlaff, D., Geltner, D. and Haurin, D. (2003), “Controlling for the Impact of Variable Liquidity in Commercial Real Estate Price Indices”, Real Estate Economics, Vol. 31 No. 2, pp. 269- 303.

    Fisher, J., Geltner, D. and Pollakowski, H. (2007), “A Quarterly Transactions-based Index of Institutional Real Estate Investment Performance and Movements in Supply and Demand”, Journal of Real Estate Finance and Economics, Vol. 34 No. 1, pp. 5-33.

    Gatzlaff, D. H. and Haurin, D. R. (1998), “Sample Selection and Biases in Local House Value Indices”, Journal of Urban Economics, Vol. 43 No. 2, pp. 199-222.

  • Metrics
    0
    views in OpenAIRE
    0
    views in local repository
    28
    downloads in local repository

    The information is available from the following content providers:

    From Number Of Views Number Of Downloads
    Central Archive at the University of Reading - IRUS-UK 0 28
Share - Bookmark