Abstract
The listed property sector in South Africa has grown to a size which could be considered to be a good representation of the income producing property market in general. Stock market listed property investment funds offer the opportunity to compare indirect property investment to direct property investment, which could bridge the gap between irrational investment behaviour and intrinsic asset values. This study investigates the relationship between listed property share prices and the property values in listed property funds. The share prices are correlated with various factors, such as the accounting ratios of the companies, the financial statements of the companies and general economic variables. The outcome of the study is an explanation of the behaviour of listed property shares, and its relationship to the direct property market and the general economy. This would assist in the explanation of market behaviour and provides the opportunity to more accurately predict portfolio asset values, which might be used in the valuation of individual real estate assets.
Highlights
Behavioural finance theory has shown that share price movement follows the irrational behaviour of the market and that the market is not as efficient as traditional economic theory would want to believe
If the principles of behavioural finance could be applied to property shares, a lot could be learnt from the listed property sector which, due to the correlations that were seen earlier in this paper between property shares and the underlying assets, could be applied to direct property investment as well
In the study it is identified that listed property share price behaviour, and Property Loan Stock (PLS) shares, can provide accurate information on the movement in share prices
Summary
Behavioural finance theory has shown that share price movement follows the irrational behaviour of the market and that the market is not as efficient as traditional economic theory would want to believe. Wilson and Zurbruegg (2003:205-206) indicated that with the emergence of securitised real estate as a viable alternative for institutional investors in the late 1980s and early 1990s, it has become an integral part of the research debate as to whether the direct and indirect property markets are driven by different forces. They state that a shortcoming in the literature appears to be a lack of effective identification of those factors that appear to have a lasting effect on moving property markets (permanent components) and those that do not (transitory components). Rather than focussing on the space and capital market equilibrium, this study considers the possibilities to obtain information from the more liquid indirect real estate market in order to explain the direct market
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