Indirect Real Estate Investment Research Articles

Impact of Corporate Governance Structures on the Relationship between Direct and Indirect Real Estate in China

Executive Summary. While the indirect real estatemarket has been growing in Mainland China, the issueof corporate governance has emerged as a key concern forinvestors, as a number of cases involving stock manipulationhave been revealed in recent years. This studyinvestigates the degree to which corporate governancestructures might be affecting the link between direct andindirect real estate in Mainland China. Based on datafrom 1994 to 2008, it was found that Mainland-listedproperty companies had a weaker linkage between directand indirect real estate than Hong Kong-listed propertycompanies. Regulatory reforms in the Mainland stockmarkets have, however, tended to improve the linkage, aswell as selection returns for Mainland-listed companies.These findings suggest that corporate governance structureis in fact priced, and that it should be an importantfactor when considering between direct and indirect realestate investment in the PRC.

Performance of open‐ended real estate funds in Germany

PurposeIn Germany, open‐ended funds represent the prevailing form of indirect real estate investment for retail and institutional investors. The purpose of this paper is to address whether significant performance differences occur between retail and institutional funds.Design/methodology/approachThe relative fund performance of 137 funds investing in Germany and abroad are each measured against tailored Investment Property Databank performance benchmarks of direct property investments. Such benchmarks shall mimic the asset allocation of any particular fund. Data on retail fund performance are retrieved from the fund association BVI, the data on institutional fund performance are derived from the individual statements of accounts for each fund.FindingsGerman open‐ended funds show significant differences in mean relative returns. The differences are mainly driven by the respective asset allocation of the funds, although relative returns against tailored benchmarks as dependent variables are supposed to offset country‐specific return fluctuations. Institutional investors tend to be better‐off than retail investors.Research limitations/implicationsLiquidity holdings are not (and can not be) extracted from fund performance with the given data. In this regard, it must be acknowledged that retail funds by nature are induced to carry more liquidity. Second, the high significance of the factor asset allocation may indicate that country‐specific benchmarks could still be tailored more effectively. However, the conclusions from this paper remain unaffected. Ex post variations in the grouping of funds explain additional fund performance variance. In particular, it would be interesting to analyze the performance patterns of single‐investor funds and the influence or control that is being exercised by single‐investors in institutional funds.Originality/valueResults give new insights into the performance of open‐ended real estate funds. The analysis helps explaining performance patterns and contributes to an improved understanding of the German indirect real estate investment market.

German property investment vehicles and the introduction of G‐REITs: an analysis

PurposeGermany is the biggest real estate market in Europe. Although some established vehicles for indirect property investments are available, the German real estate market is dominated by direct investments and lags behind its international peers in capital market integration. The purpose of this study is to examine whether the recent launch of German REITs may improve this situation.Design/methodology/approachExisting indirect property investment vehicles and the new G‐REIT are analysed and compared along the dimensions of transparency, liquidity and risk/return characteristics. In addition, potential capital flows into G‐REITs are investigated and economic implications derived.FindingsThe study identifies the limitations of existing German indirect real estate investment vehicles and demonstrates the superior characteristics of the new G‐REIT. Substantial short‐term capital flows from existing vehicles to G‐REITs are, however, unlikely. Instead the temporary exit tax will foster an economically beneficial reallocation of capital by private companies and public authorities through property sales to new domestic and international investors via G‐REITs.Originality/valueThe results indicate that G‐REITs have the potential to attract substantial funds in the medium term and facilitate a more integrated and developed German property and capital market.

Real estate security and other investment assets

PurposeQuite a substantial number of academic papers have examined the performance of both direct and indirect real estate relative to other investment assets. While these studies are valuable in the field of real estate investment performance measurements, a gap still exist in the literature on the comparative performance of investment assets in the various sectors of the stock markets of most emerging economies. This paper aims to fill the gap by providing analysis of the historical performance of real estate and other securities in the Nigerian capital market.Design/methodology/approachAnnual open and closing market prices of shares and dividend of sampled listed companies in addition to data on all share index (ASI), consumer price index (CPI) and yield on 90‐days T‐Bill were obtained for the period 1999‐2005. These were then analysed using descriptive, risk‐adjusted measures and regression models.FindingsThe empirical evidence suggests that while real estate outperformed the market on a nominal basis, it underperformed the market stock on a risk‐adjusted basis over the time period of analysis. Unexpectedly, real estate security did not provide a good protection against inflation and is also uncorrelated with the stock market.Originality/valueThis paper provides empirical evidence of the investment characteristic of indirect real estate investment in Nigeria. The results suggest that real estate security does not after all provide a good substitute to direct real estate investment.

The Development of German Open-Ended Real Estate Funds

In Germany, open-ended real estate funds have faced the highest cash inflows in their history turning them into a major player on the German market. At the same time, on the regulatory side, the “Fourth Financial Markets Promotion Act” significantly increased the possibilities for German funds to invest internationally. This paper examines the history, construction and characteristics of German open-ended real estate funds. They are compared to other forms of indirect real estate investment and the most important improvements brought about by the Fourth Financial Markets Promotion Act are described. Fund managers in the future will increase the percentage of their portfolios invested abroad, increasing the importance of German open-ended real estate funds.

Diversification Effects of Direct versus Indirect Real Estate Investments in the U.K.

Executive Summary.This study uses annual data from 1975 through 2003 to construct mean-variance optimal portfolios for the United Kingdom. Real estate return data for all U.K properties from the Investment Property Databank (IPD), for U.K. pooled property funds, and for U.K. property shares are used, in addition to U.K. common stocks (equities) and gilts (government bonds). The different mixed-asset portfolio allocations using the different real estate return series are compared/contrasted. Finally, the return series are unbundled for U.K. IPD real estate, U.K. common stocks, and U.K. gilts into income and appreciation returns and additional optimal mean-variance portfolios, which are constructed for income returns, appreciation returns, and total returns (income and appreciation returns).

Listed Property Trusts in Malaysia

Malaysia was the first Asian country to develop listed property trusts as an effective indirect real estate investment vehicle in 1989. This article presents an overview of the development of the listed property trust sector in Malaysia, with performance analysis over 1991-2000. Local structural and regulatory factors are identified that have contributed to the slow development and poor performance of property trusts in Malaysia. Strategies are articulated that would contribute to the ongoing development of the property trust sector as an effective indirect real estate investment vehicle in Malaysia, as well as in other Asian countries, such as Japan, Singapore and Korea.

International Asset Allocation with Real Estate Securities in a Shortfall Risk Framework: The Viewpoint of German and U.S. Investors

Executive Summary. This study analyses the diversification potential of integrating indirect real estate investments in international investment portfolios. To this end, monthly index-return time-series for the time-period from January, 1985, through June, 2001, from real estate investment companies, common stocks and bonds in France, Germany, Great Britain, Switzerland and the United States were used. Due to the critical normal distribution assumption, a mean / lower-partial-moment framework was employed. In order to take into account the influence of the currency risk for international investments, the analyses have been undertaken with and without hedging the currency risk. The viewpoint of a German as well as that of a U.S. investor was taken to gain insight into the dependency of the diversification potential on the reference currency of the investor.