Direct Real Estate Investment Research Articles

Exploring determinants impacting foreign direct investment in the real estate sector: a study on the Indian economy

PurposeForeign direct investment in the real estate (FDIRE) sector is required to bridge the gap between investment needed and domestic funds. Further, foreign direct investment is gaining importance because other sources of raising finance such as External Commercial Borrowing and foreign currency convertible bonds have been banned in the Indian real estate sector. Therefore, the objective of the study is to explore the determinants attracting foreign direct investment in real estate and to assess the impact of those variables on foreign direct investments in real estate.Design/methodology/approachJohansen cointegration test, vector error correction model along with variance decomposition and impulse response function are employed to understand the nexus of the relationship between various macroeconomic variables and foreign direct investment in real estate.FindingsThe results indicate that infrastructure, GDP and tourism act as drivers of foreign direct investment in real estate. However, interest rates act as a barrier.Originality/valueThis article aimed at exploring factors attracting FDIRE along with estimating the impact of identified variables on FDI in real estate. Unlike other studies, this study considers FDI in real estate instead of foreign real estate investments.

Optimisation of the investment strategy of the Norwegian Sovereign Wealth Fund by adjusting the real estate quota

Purpose This paper compares the benefits of direct international real estate investments in a mixed asset portfolio from the perspective of a passive investor with high and low bond allocation.Design/methodology/approach Due to high data availability and its professionalism, the Norwegian sovereign wealth fund was used as a representative example. Real estate indices from 8 countries were used for the portfolio analysis. The data were desmoothed according to Geltners’s 1993 approach.Findings The optimal real estate ratio in the present case is around 20–55%. However, this is strongly dependent on the bond ratio of the multi-asset portfolio. Portfolios with a high equity ratio benefit more from the additional direct real estate investments than portfolios with high bond ratios.Research limitations/implications A rebalancing of individual stocks and bonds was not analysed. Only indexes from MSCI (Morgan Stanley Capital International) were available.Practical implications Concludes that the weighting of stocks and bonds has a strong influence on the optimal real estate ratio and therefore structural changes that affect this weighting.Originality/value The originality of the paper lies in the analysis with different weights of stocks and bonds, the consideration of 8 real estate markets and the observation period. The results of the work highlight areas of interest for further research.

해외 부동산 직접투자의 인식에 관한 연구

The purpose of this study is to investigate and analyze the perception of direct investment in overseas real estate. The research method combines theoretical research and case study. In the case study, 100 real estate-related workers were surveyed on their perceptions of overseas real estate direct investment, and this was statistically analyzed. Considering the results of the analysis, As a result of the analysis, first, 94% were positive about the need for overseas real estate direct investment, and only 4% were negative. Second, as for preferred investment destination countries, “developed countries such as the United States, Canada, and Europe” were high at 41% and “developing countries such as Vietnam, the Philippines, and Malaysia” were high at 32%. Third, 91% were positive about Japanese real estate investment. Fourth, as for the motives for overseas real estate direct investment, “domestic strong regulation-oriented real estate policy” was found to be high at 56%, and “opaque future of Korean society” was found to be high at 25%. Fifth, in terms of investment intention, “stable rate of return” was 28%, “cheap ownership tax and capital gains tax” was 27%, and “certainty of ownership guarantee” was 23%. Sixth, as obstacles to direct investment in overseas real estate, “problem of overseas real estate management” was found to be high at 53%, and “ignorance of overseas real estate market” was found to be high at 29%. Considering the results of this analysis, the government suggests that a policy to support direct overseas real estate direct investment is needed to reduce investment risk and ensure stable investment for overseas real estate direct investors.

Analysis of Foreign Direct Investment Attraction in Vietnam Real Estate in the Pandemic Condition

The economy of Vietnam is a socialist-oriented emerging market that heavily depends on agriculture, tourism, raw material exports, and foreign direct investment. Vietnam is industrializing and modernizing from a low starting point with weak and small economic resources. This is one of the huge obstacles to the development of Vietnam’s economy. Therefore, mobilizing and leveraging foreign direct investment are very important. In the COVID-19 pandemic, many large international corporations and enterprises are looking for investment opportunities to diversify their supply chains and limit their overdependence on the Chinese market. Vietnam has emerged as one of the brightest candidates for this capital flow due to its success in epidemic prevention. While foreign direct investment has been declining globally, foreign direct investment in Vietnam has rebounded in the second quarter of 2020 and has been on an upward trend. The real estate market remained an active segment in the third quarter of 2020. This article uses comparison, logical and statistical analysis methods to study foreign direct investment in real estate in Vietnam. The contribution analyzes the factors that influenced the desire of foreign investors to invest in the Vietnamese real estate market, based on publicly available data sources of the Foreign Investment Agency, Vietnam Ministry of Planning and Investment; and the General Statistics Office of Vietnam. Solutions at the state level to stimulate investment in Vietnam are proposed.

The uneven geography of real estate investment by Mainland Chinese state-owned and private enterprises in the U.S.: Local market conditions, migration, and ethnic networks

Since the 2010s, foreign direct investment in real estate (FDIRE) by Mainland Chinese firms has emerged as a major force within global real estate markets, challenging Western investors’ traditional dominance. It is unclear, however, whether Mainland Chinese FDIRE is fueled by the same motivations as those of investors from advanced economies, which to date have represented both the primary investors and main objects of study. One major difference may be that Mainland Chinese investment originates in an institutional environment comprised of strong state intervention and social networks important for fostering business and ethnic ties. To uncover the potentially unique determinants and heterogeneity of Mainland Chinese corporate real estate investors, we build and analyze a state-level panel dataset of Mainland Chinese FDIRE by state-owned enterprises and private enterprises in the U.S. from 2010 to 2017. Our empirical results reveal the importance of Chinese migrants in promoting Mainland Chinese real estate investment, especially by private enterprises. Our findings also demonstrate that at the state level, Mainland Chinese FDIRE exhibits few agglomerative tendencies.

Real Estate ETNs in Strategic Asset Allocation

Previous research has shown that real estate serves as a diversifier in mixed-asset portfolios. However, this empirical finding is beset with some drawbacks associated with direct real estate investment. In order to overcome some of these drawbacks, we use theoretical real estate exchange traded notes (ETNs) in a mean-shortfall setting to optimize an international mixed-asset portfolio. In addition, the typical long-only strategy is abandoned in favor of a 130/30 long-short and an exchange rate hedge strategy. Not only in-sample but also out-of-sample portfolios yield significant diversification benefits by means of real estate ETNs in different portfolio strategies.

The Uncertainty Index and Foreign Direct Real Estate Investments in Developing Economies

Attainment of standards in a country’s real estate market to meet international investors’ expectations contributes significantly to the real estate sector. However, in developing economies characterized by an environment of uncertainty where stability cannot be achieved, direct investments in real estate can bring returns to foreign investors. This is because economic uncertainty in developing countries raises the exchange rate. An increase in the exchange rate keeps real estate prices in developing countries relatively low. Foreign investors then take advantage of the low prices to invest in real estate in that country. The study aims to research whether the uncertainty in developing countries increases the foreign direct real estate investments. The study examines the relationship between the uncertainties in selected developing economies in Europe and the real estate investments by foreigners in the period 2008–2018. Gengenbach, Urbain, and Westerlund Panel Cointegration test and PDOLS coefficient estimation methods were used in the study. According to the analysis results, a 1% increase in the uncertainty index in the economies examined increases foreign direct investments by 5.731%. Since this study is one of the most detailed studies measuring foreign direct real estate investments under uncertainty conditions in the economy, it contributes to the literature. To sustainably increase foreigners’ direct real estate investments in developing countries, economic and political stability should be prioritized. Facilitating the bureaucratic process, providing tax reductions, making real estate suitable for demand, following the appropriate price policy, and making various environmental regulations will also increase foreigners’ direct real estate investments. Doi: 10.28991/esj-2021-01293 Full Text: PDF

Performance of Foreign Direct Investment in Commercial Real Estate in Nigeria from 2006-2017

Performance of FDI in commercial real estate in Nigeria when compared to international benchmark figures is yet to be established and documented in literature. The aim of the study was to appraise the performance of FDI in commercial real estate in Nigeria from 2006 to 2017 in a bid to empirically assist foreign direct investors’ decisions on investing in the Nigerian commercial real estate sector. The objectives were to; ascertain and compare returns from foreign direct investments in commercial real estate in Nigeria with international benchmark; and to examine how FDI tax responsibilities in Nigeria compare with the global benchmark rate. The study adopted ex post facto research design, and the unit of analysis was selected foreign controlled commercial real estate investments in Lagos and Abuja. The study adopted the Jones Lang LaSalle benchmark settings for commercial real estate performance indicator due to its empiricism from an international perspective where yield is 5.7%, capital growth is 7% and rental growth is 5.5%. Data were collected on rental values, capital values, tax responsibilities, and was analyzed using T-test. The study showed a yield of 4%, (t = 6.364; p < 0.05) and a capital growth rate of 21%, (t = 1.592; p > 0.05), while there was no negative variation in FDI tax responsibilities in Nigeria and international benchmark rate cap of 30% (t = .8666; p > 0.05). The study recommended that property managers should practice tenant mix and flexible leases and spaces.

International Real Estate Review

Our paper aims to examine the healthy building adoption patterns by first asking two critical questions that are relevant to the market conditions: What are healthy buildings? What is their financial value for tenants and owners? We then synthesize the existing academic and industry literature. We find some early evidence of a real estate price premium for specific indoor environment quality (IEQ) and design features. In terms of health-focused building certification systems (BCSs), no empirical and quantitative research has been done on the financial performance of healthy buildings, except for theoretical models. We then proceed to conduct interviews with executives of 15 real estate corporations across the globe to understand the perspectives of real estate owner operators and their strategies for this emerging market. The interviews results confirm that the scarcity of empirical evidence that links healthy building attributes to financial returns inhibits the adoption of healthy buildings in mainstream designs. Moreover, differences in the adoption patterns of healthy buildings are due to the building ownership structure at the firm level, tenants, end-users and building conditions. The strategies of firms in pursuing a healthy building range from risk mitigation to proactive pursuit of new growth opportunities. Private equity funds and real estate investment trust (REIT) firms tend to focus on risk mitigation, while direct real estate investment firms are more likely to carry out the latter to position themselves as a leader within the real estate industry.

Global Risk Premiums on Direct Office Real Estate Returns

This article empirically examines the magnitude of risk premiums for direct real estate investments on a global basis. As this article analyzes ex-ante risk premiums over more than 25 years consistently across the world, it enhances current knowledge about the regional differences between risk premiums and helps long-term investors with their global portfolio allocation over time. On a global level, the authors find a risk premium of 4.1% for Gordon’s growth and 3.7% for two-stage growth model. The periodic growth model shows a slightly lower risk premium of 3.1%. As this study is analyzing a long time period, the article extends the literature by finding evidence for convergence between risk premiums across continents both over time and in cross-sectional variance. However, this is happening slowly, thereby making differences in risk premiums very important in making a global direct real estate investment allocation. <b>Key Findings</b> ▪ The authors analyze ex-ante risk premiums over more than 25 years across the world and use three alternative valuation models to estimate ex-ante risk premiums. ▪ They find that the regional risk premiums are consistent with previous research on the determinants of risk premiums, but these studies were done over shorter time periods. ▪ The authors find evidence for convergence between risk premiums across continents both over time and in cross-sectional variance.

외국인직접투자가 중국 부동산시장에 미치는 효과에 관한 실증 연구

In this paper, we attempt to examine the effects of foreign direct investment in real estate (FDIRE) on the housing prices in China. We employ ARDL (AutoRegressive Distributed Lag) bound test (Pesaran et al. 2001) to investigate the long-rum relations between macroeconomic variables. We use FMOLS (Phillips and Hansen, 1990) and DOLS (Stock and Watson, 1993) to calculate the individual cointegration vectors. We select four categories of commercial residence buildings as dependent variables, namely, business, commodity, residence and office buildings. Based on existing literature, we employ four macroeconomic variables as independent variables, i.e. interest rate, exchange rate of RMB to US dollars, FDIRE and industrial growth ratio as proxy variable of GDP. We find that the FDIRE has a significant negative effect on the real estate prices in China. This implies the Chinese government should keep providing favorable conditions for more FDIRE to stabilize the booming real estate market in China.

HOUSING FINANCE: IMPACT OF HEAVY INTEREST INCOME TAX

Heavy taxation of interest income becomes a structural driver of property prices in a low-interest-rate environment. Inflation-adjusted price appreciation in 1996-2017 is approximately 200 basis points higher in 14 countries allowing no exemptions on interest income than in 37 countries that tax interest income at favorable rates or provide exemptions. Results for average returns over long-term periods are confirmed in models with annual frequencies, city-level data, and in a sample of 39 OECD countries for which price/rent ratios are available. It appears that investors view direct real estate, a heavily tax-favored asset, as an inflation hedge and/or alternative to fixed income asset. Higher interest income taxation may be fueling demand for direct real estate investments by retail investors. Separately, my empirical findings suggest that easy monetary policy effects can be magnified through the housing channel in countries that do not allow exemptions on interest income. Consequently, we should expect larger investment misallocations due to asset prices departure from fundamentals in some geographies. &#x0D; JEL Classification Codes: E3, E4, F3, G1, G5, H2.

International Real Estate Review

Financial globalization has enabled investors to allocate some of their portfolio assets to foreign countries and alternative assets. This environment has also created an increase in investment in international real estate especially in the emerging markets. In this study, we investigate whether foreign real estate investors outperform domestic investors after controlling for property specific characteristics. Using property level transaction data of Korea from 2003 to 2016, we also examine the characteristics of commercial real estate investment associated with the probability of an acquirer being a foreign investor versus a domestic investor. The binary and multinomial probability models are used to test our research hypothesis and the structural equation model is applied to find the determinants of the internal rate of return. The result reveals foreign investors perform better than domestic investors in a holding period analysis. Furthermore, the findings support that foreign direct and indirect real estate investments are statistically significant to the age of the building, corporate bond and exchange rates, growth domestic product growth, and the equity market movement in the domestic market.

Market Adoption of Healthy Buildings in the Office Sector: A Global Study from the Owner’s Perspective

The emergence of human health and well-being concerns provide market differentiation opportunities for real estate companies globally. Our paper examines the market adoption of healthy office buildings by looking into how a healthy office building is defined and measured in the marketplace. What is its financial value for tenants and owners? What are real estate owner's perspectives and strategies for this emerging market? We synthesized the existing body of academic and industry literature, and conducted interviews with executives from 15 real estate corporations that own office buildings across the globe. The results from literature review indicate that there is some early evidence of a real estate price premium for specific indoor environment quality (IEQ) features. At the level of health-focused building certification systems (BCS), there is no empirical and quantitative research on healthy building’s financial performance, except theoretical return on investment (ROI) models. The results from owners’ interviews confirm that the scarcity of empirical evidence linking healthy building attributes to financial returns presents the mainstream adoption barrier for building owners. Owners are adopting diverse healthy building attributes that are driven by end-user’s health and wellbeing demand regardless if they are adopting health-focused BCSs. Their strategies for pursuing the healthy building market range from risk mitigation to proactive pursuit of new growth opportunities. Private equity funds and real estate investment trusts (REITs) firms tend to focus on the former, while direct real estate investment firms are more likely adopt proactive strategies to lead the adoption curve.

한국 기업의 해외부동산 직접투자 진출에 대한 연구

Korea enacted the Foreign Exchange Management Act on December 31, 1961 for the purpose of balancing the balance of balance of payments, stabilization of currency value and efficient management of foreign currency funds. Therefore, the changes in real estate direct investment performance and related foreign exchange policy changes were examined using foreign real estate investment data from 1986 to 2016. The correlation between foreign direct investment and major macroeconomic variables (GDP, Kospi, exchange rate, domestic interest rate, etc.) Significance was reviewed through relationship analysis. As a result of the study, the government's univariate policy enforcement on foreign real estate direct investment has been evaluated to have a very positive effect on maintaining the balance of the balance of payments and stabilizing the economy. While the burden ratio had a significant effect on the company’s net direct investment in foreign real estate, the real estate market share and KOSPI index did not have a significant effect on the company’s net direct investment in overseas real estate.

An investment decision: Expected and earned yields for passive income real estate investors

This study aims to analyse the demographic characteristics of real estate investors and their attitude towards expected and earned yields when making direct, indirect, and non-real estate passive income investments. Quantitative analysis is employed based on both online and offline survey data from 334 real estate investors. Results reveal that general investor characteristics such as gender, education, and marital status tend not to affect investment decisions. Moreover, investors’ earned yields from any investment type are mostly lower than expected yields. However, the results also reveal that direct real estate investment has a higher probability of earning higher yields and a lower probability of earning poor yields than indirect real estate and non-real estate investments. Although most investors believe that passive income is the key to achieving financial freedom, few are successful in earning excellent yields. This demonstrates the difficulty of attaining financial success through passive income investments alone. Therefore, active income remains necessary to enhance an investor’s passive income portfolio in the pursuit of financial freedom.

Real Estate in Mixed-Asset Portfolios for Various Investment Horizons

In this article, the authors investigate the role of real estate in a mixed-asset portfolio for various investment horizons and notably extend the literature by considering together direct real estate, real estate investment trusts (REITs), and nonlisted real estate funds, as well as other alternative investments. Using US data spanning almost three decades, they report that medium- to long-term investors should allocate 10% to 20% of their portfolio to direct real estate. In contrast, short-term investors should focus on open-end core funds, which are found to be good substitutes for direct investments. REITs are usually of limited interest as a substitute for direct real estate, but they could be used in conjunction with direct investments for medium- and long-term horizons. Value-added and opportunistic closed-end funds are found to be imperfect substitutes for direct investments and are only marginally used. Finally, the authors find that including commodities, private equity, and hedge funds in a portfolio enhances the portfolio’s performance but the allocation to real estate barely changes. TOPICS:Statistical methods, real estate, risk management, portfolio construction Key Findings • Allocation to direct real estate is null until a 2.5-year investment horizon, due to high transaction costs, but increases rapidly up to 20% for a 25-year investment horizon. • Core nonlisted funds are excellent substitutes for direct real estate investments, which is very useful for short investment horizons. • Including other alternative asset classes in the portfolio is useful, but this does not reduce the allocation to real estate.

Risk measures for direct real estate investments with non-normal or unknown return distributions

The volatility of returns is probably the most widely used risk measure for real estate. This is rather surprising since a number of studies have cast doubts on the view that volatility can capture the manifold risks attached to properties and corresponds to the risk attitude of investors. A central issue in this discussion is the statistical properties of real estate returns—in contrast to neoclassical capital market theory they are mostly non-normal and often unknown, which render many statistical measures useless. Based on a literature review and an analysis of data from Germany we provide evidence that volatility alone is inappropriate for measuring the risk of direct real estate.We use a unique data sample by IPD, which includes the total returns of 939 properties across different usage types (56% office, 20% retail, 8% others and 16% residential properties) from 1996 to 2009, the German IPD Index, and the German Property Index. The analysis of the distributional characteristics shows that German real estate returns in this period were not normally distributed and that a logistic distribution would have been a better fit. This is in line with most of the current literature on this subject and leads to the question which indicators are more appropriate to measure real estate risks. We suggest that a combination of quantitative and qualitative risk measures more adequately captures real estate risks and conforms better with investor attitudes to risk. Furthermore, we present criteria for the purpose of risk classification.

Role of high-speed rail on social fixed assets investments in China

ABSTRACTRapid development of high-speed rail (HSR) in the past decade has a tremendous boosting effect on China’s economy and society. Under the ‘New normal’, HSR provides an important physical space for the steady expansion of the national economy. This paper uses a panel dataset comprising 285 prefecture-level cities in 2010–2016 to establish an investment measurement model and estimate the impact of HSR on social fixed assets investment. It also uses the difference-in-difference and propensity score matching tests to verify the results. Two important findings arise from the empirical analyses: (1) HSR development significantly stimulates China’s social fixed assets investment, foreign direct investment and real estate investment; and (2) HSR investment does not substitute for investments in other industries, instead, it supplements them. These findings provide strong theoretical and empirical support for China’s long-term HSR development strategy.

The Determinants of Foreign Direct Investments in Real Estate: Turkey Case

The aim of this study is to investigate the key factors affecting foreign direct real estate investment (FDIRE) in Turkey’s economy. A DOLS-FMOLS estimator model was developed to investigate the determinants of FDIRE in Turkey. Data was used between 2003Q1-2018Q2. This study differs from the previous ones in that this particular topic is being researched as regards the economy of Turkey for the first time. The results showed that the most important variables affecting foreign direct real estate investment in Turkey was openness and exchange rate. Furthermore, economic growth also has a positive impact. On the other hand, interest has been found to be the most negative factor affecting investments. Moreover, the increase in building construction costs directly reduce foreign real estate investment. The results show that the gradually increasing openness of Turkey’s economy contributes to the increase in foreign investments in the real estate market.