Linkages Between Direct and Indirect Property Performance in Hong Kong
Graeme Neweell, School of Land Economy, University of Western Sydney and Kwong Wing Chau, Department of Surveying, The University of Hong Kong | The relationship between Hong Kong property company and commercial property market performance is assessed over 1984-94. Property companies are found to provide useful source of transaction-based information about changing property market fundamentals. The unique property market characteristics in Hong Kong mean that information is impounded into direct property series quickly, within one quarter of being impounded into indirect property company stock prices. A common "pure property" element is found that influences both property company and property market returns. This results in investors capturing some portion of Hong Kong property market returns by investing in property companies, as well as achieving liquidity and portfolio diversification. |
Buy-Sell Strategies in the Hong Kong Commercial Property Market
Gerald Brown, University of Salford, UK | Developing a successful strategy for investment in property is not easy. Research show that abnormal returns, net of transactions costs, are difficult to achieve even though there is a widespread belief amongst valuers that property markets are inefficient. This is compounded by the fact that reliable data on property performance is usually difficult to obtain.
It is possible, however, to make use of the publicly available data and use it in a way which may help investors guide their decisions. If abnormal returns are difficult to achieve on a consistent basis, then the use of methods of analysis which give the investors some competitive advantage are worth pursuing. Although high returns have been achieved in the Hong Kong commercial property market this does not imply that those returns are abnormal in an economic sense; they may merely offer compensation for risk.
By extracting equilibrium market values and implied prices from market data this paper examines abnormal returns earned by Hong Kong commercial property over the period 1985 - 1995 and shows that, in general, the market exhibits a high degree of efficiency. The least efficient sector was offices which showed an average abnormal return of 1.73% per quarter, although this was statistically indistinguishable from zero.
Identifying when the market is under and overpriced may improve the negotiating position of the investor. It may also be possible to develop similar buy/sell strategies to exploit informational inefficiencies at the individual property level.
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Real Estate Development Analysis in China
Li Ling Hin, Department of Surveying, The University of Hong Kong | Real estate development and investment in China has become a strategy rather than an investment opportunity for most of the international investors. However, given the relative short period of time in the development of the real estate market in China, there are still a lot of deficiencies in the market. One of these is the difficulty in establishing values for real estate assets. The other is the complication of the development procedures which affects property investment analysis. This paper tries to examine the problems in carrying out development analysis in this market by analyzing a joint venture development in Beijing, China. |
Relationship Between Hong Kong House Prices and Mortgage Flows Under Deposit-Rate Ceiling and Linked Exchange Rate
Raymond Y.C. Tse, Department of Architecture, The University of Hong Kong | The results of this paper show that there is a Granger-causality relationship between house prices and mortgage flows in Hong Kong where there is a deposit-rate ceiling and linked exchange rate. While the demand for housing units is distorted by mortgage constraints, any exchanges of housing demand or house prices will have a feedback on mortgage lending, and thus tend to iron out the housing demand to a level consistent with the short-run availability of financing. The results strongly suggest that house prices in Hong Kong tend to lead the mortgage flows, not vice versa. Sudden unexpected changes in housing demand may not affect aggregate mortgage availability within a short period of time. However, as an increase in housing demand becomes more permanent contributions to house prices, the higher housing prices will be increasingly translated into higher mortgage flows in the long run.
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Property Companies' Share Price Discounts and Property Market Returns - The Singapore Evidence
Liow Kim Hiang, School of Building and Estate Management, National University of Singapore, Singapore |
This study analyses the quarterly share price discount/premium of Singapore property companies in the period 1980 to 1994. Further investigations suggest a inverse relationship between the size of average valuation discount of property equity and direct property return even in the presence of a "pure" property factor in both markets. Our research lends further evidence to the growing belief that property stocks may be regarded as proxy for direct property investments.
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Evidence of Segmentation in Domestic and International Property Markets
Patrick J. Wilson and John Okunev, School of Finance and Economics, University of Technology, Sydney |
The risk/return trade-off is a perennial problem of portfolio managers. Portfolio diversification strategies should be such that investments are held in markets that are well insulated from each other so that the effects of market fluctuations in one market are not transferred to the other. Conventional wisdom suggests that a well diversified portfolio should contain assets spread across different markets, such as holdings of equities, bonds and property, while an increasingly accepted notion is that protfolios should also be diversified internationally. Research over the last few years has, if not questioned this conventional wisdom, at least sought confirmation. The current paper continues this inquiry. In particular we are concerned with the twin issues of whether property should form part of a well diversified portfolio, and whether property should form part of a portfolio that is diversified internationally. Using the relatively new technique of cointegration analysis, this study provides evidence from the US, the UK and Australia that domestic real estate and equity markets are segmented and also provides evidence that securitised property markets are segmented internationally - implying that there are risk reduction benefits to be gained through diversification in both instances.
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Measuring the Effects of Borrowing on Property Investments
Patrick Rowland, Department of Property Studies, Curtin University of Technology, Perth, Western Australia |
Investors commonly use debt finance in the purchase of income-producing properties with the aim of enhancing their return on equity. This paper describes how the past effects of borrowing can be assessed from property returns and loan interest rates in recent years. Methods for measuring the past consequences of financial leverage are considered and tested. Based on data from the residential property market in Perth, Western Australia (between 1982 and 1994), borrowing at a variable interest rate would have shown a modest increase in return and added considerably to the volatility or risk. The impact of inflation and taxation on the benefits and risks of financial leverage is also assessed.
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