Rental Yields Research Articles

Reverse Mortgage Risks. Time Evolution of VaR in Lump-Sum Solutions

In this study, we analyzed the risk faced by the reverse mortgage provider in the case of the lump-sum solution, which is increasingly becoming one of the most popular types of reverse mortgages. The risk faced by the mortgage provider was estimated by means of a value at risk (VaR) procedure that involves a Monte Carlo simulation method and an ARMA-EGARCH assumption for modeling house price returns in the United Kingdom from 1952 to 2019. The results showed that the reverse mortgage provider faced higher risk and consequently needed to allocate more funds to meet its regulatory capital requirements in the case of relatively young borrowers, especially when they reached their life expectancy and had high roll-up rates. The risk was even higher in the case of the female population. Furthermore, care must be taken when the rental yield rate is higher than the risk-free rate, as is currently the case, as the value of the no-negative-equity guarantee (NNEG) is relatively high and results in higher value at risk (VaR) and expected shortfall (ES) values. These results have important implications in terms of policy decision making when determining the countercyclical buffer for reverse mortgages in Basel III, as well as from a managerial perspective when determining the economic capital needed to support the risk taken by the lender.

The Total Return and Risk to Residential Real Estate

We estimate total returns to rental housing by studying over 170,000 hand-collected archival observations of prices and rents for individual houses in Paris (1809--1943) and Amsterdam (1900--1979). The annualized real total return, net of costs and taxes, is 4.0% for Paris and 4.8% for Amsterdam, and entirely comes from rental yields. Our returns correlate weakly with the implied returns in Jorda et al. (2019) and are substantially lower. We decompose total return risk at the individual asset level, and find that yield risk becomes an increasingly important component of property-level risk for longer investment horizons.

The Effect of Economic and Fundamental Factors on the Australian Property Performance

This study examines the effect of the trade weighted index (TWI) return on the volatility of Australian Real Estate Investment Trusts (REITs). This study also contributes to the existing literature by measuring the impact of the macroeconomics and fundamental factors on the real estate market for three major states in Australia including New South Wales, Victoria, and Queensland. Using monthly house and unit prices and covering the period from 2009 to 2016, this research uses both fixed and random effect panel data models and the vector autoregressive (VAR) model. The findings of the study suggest that the movement of the TWI has positive and statistically significant impact on Australian REITs suggesting the real estate investors expect risk premium on exchange rate factor. The results also purport that both house and unit prices in Australia are exposed to the fluctuations of the fundamental risk factors. Rental yield, a return component, has a positive relationship with the real estate market in New South Wales and Queensland. The findings of the study provide significant insight to the investors in their portfolio formation since they have the understanding of the priced risk factors.

Dual Markets & Optimal Collectibles Securitization

I develop a model of collectibles tokenization to understand whether recent tokenization efforts create or destroy value. While issuing divisible security tokens against illiquid collectibles lowers transaction costs and facilitates greater portfolio diversification, security design complications arise because ownership rights and viewing rights are necessarily separated. Current efforts squander the viewing rights, likely making tokenization welfare-reducing, thereby explaining limited adoption. Instead, renting the viewing rights would make tokenization welfare-improving. While collectibles rental markets are immature, I show empirically that only modest rental yields are needed to make tokenization welfare-improving, which suggests this security design shortcoming can be resolved.

UK House Prices and Three Decades of Decline in the Risk-Free Real Interest Rate

Real house prices in the UK have almost quadrupled over the past 40 years, substantially outpacing real income growth. Meanwhile, rental yields have been trending downwards — particularly since the mid-90s. This paper reconciles these observations by analysing the contributions of the drivers of house prices. It shows that the rise in house prices relative to incomes between 1985 and 2018 can be more than accounted for by the substantial decline in the real risk-free interest rate observed over the period. This is slightly offset by net increases in home-ownership costs from higher rates of tax. Changes in the risk-free real rate are a crucial driver of changes in house prices — the model predicts that a 1% sustained increase in index-linked gilt yields could ultimately (ie in the long run) result in a fall in real house prices of just under 20%.

DUE TO LEGAL POSITION AND LEGAL SURROGACY AGREEMENT AS AN INNOMINAAT AGREEMENT IN THE PERPECTIVE OF CIVIL LAW, ISLAMIC LAW AND NATIONAL LAW

Technological developments in medicine have provided an outlet for community issues with the discovery of a new method of artificial insemination is known as in vitro fertilitization (IVF). For couples who want to have children but due to medical reasons can not obtain offspring naturally, with IVF method can obtain offspring / children. But in its development appears IVF lease term or the surrogate mother's womb, the sperm and ovum from a legitimate married another woman entered in the womb. Therefore the aim of this study to determine the legal position of surrogacy agreement as an innominaat agreement in the perspective of civil law, Islamic law national law,
 This research used normative juridical approach, descriptive analytical research specification, method of data collection is done with a literature study on legal materials, both primary legal materials, as well as secondary materials, then analyzed by qualitative descriptive.
 The results showed that a good legal position surrogacy agreement according to the Civil Law, Islamic law and national law is as the agreement is not named (innominaat) and surrogacy agreement is not allowed or unlawful. While the legal consequences of surrogacy agreements either under Civil Law, Islamic law, and national law relating to the status of children, descent problems, inheritance and other rights. The legal status of children under civil law can be a legitimate child of the surrogate mother, it could be a child outside of mating recognized, while according to Islamic law status of the child as a child of the uterus rental yields laqith, while according to national law, the legal status of the child as a foster child. This inheritance rights issue depends the legal status of the child, there is nothing not inherit (civil relationship with his mother).

The Determinants of Office Rents and Yields: The International Evidence

Traditional urban models predict that office rents will be higher in larger and more prosperous cities with better transport and with industries with stronger agglomeration benefits. In addition, rental yields are expected to be lower in growing cities, especially when the supply of new office space is more constrained and the supply of capital is less constrained. We present evidence on commercial office rents and rental yields from 52 large cities in 29 developed and developing countries that is generally consistent with these implications.

Bijsluiter bij: Buy-to-let gewikt en gewogen

Over the past three years buy-to-let purchases have become a substantial presence in the Dutch housing market. Private investors buy existing homes in order to rent out. Rental yields have become attractive to a large group of individuals due to low interest rates and high rents. Though buy-to-let helps to increase the stock of rental homes (a broadly recognized need in the Netherlands) there are concerns about negative effects for instance on affordability for regular house seekers. A new group of buyers enters the market and this poses new or potentially aggrevated risks for the Dutch housing market, in particular regarding overall house price stability.

Residential Real Estate, Risk, Return and Diversification: Some Empirical Evidence

This paper outlines and applies a methodology for estimating and examining the variation in risk and return for individual homes. This is important because most households own individual properties and the risk and return profile of each of these may differ. We use large data sets of home prices and rents for Sydney, Australia, from 2002-16, and estimate flexible smoothing spline hedonic models. These models are used to construct total returns—the sum of capital gains and the rental yield net of costs—for the homes in our data. We find that Sydney homes had, on average, both higher returns than shares and much lower risk. This gave them a far superior Sharpe ratio. Moreover, while we find that shares benefit to a greater extent from diversification than homes, the Sharpe ratio of a large portfolio of shares was still well below that of the average single home. Interestingly, we find that much of the variation in risk and return across properties can be explained by observable home characteristics. In particular houses had stronger returns than did apartments.

House Rent - Price Ratios : An International Comparison

Tenants have liquidity constraints that limit volatility in nominal rents, leading houses to become bond-like. The incidence of shocks on rental yields is near zero. For 1980–2014 in Germany and Japan, houses are bond-like, with tenants bearing less than 5% of asset-price shocks. In the United States and United Kingdom, houses are inflation-linked bonds earning real yields of 4%, with tenants bearing 20% of shocks. In Korea, a capital market leads tenants to bear all price shocks. Only there is the rental yield perfectly negatively correlated with capital gains, a requirement for the user cost of housing.

The Dynamic of Location Attributes Toward Malaysian Real Estate Investment Trust Performance

The Malaysian real estate investment trusts (M-REITs) properties intensive location contributes toward higher rental yield. Nevertheless, the location diversification depends on the type of properties in the portfolio, puzzled shareholder in their investment decision making in M-REITs. This study aim to determine the dynamic of location attributes toward financial performance. The pearson correlation and descriptive analysis of ten years (2006 until 2015) data is used. This study indicate that there is correlation between attributes of economic location with dividend yield(DY) (cor: 0.241). Yet, the market capitalization, have a negative correlation (cor: -0.246), which contradict with prior study on REITs’ location attributes. This study also show that attributes of location of M-REITs properties should located between 5km to 10km from central business district (CBD).This study conclude that in order to ensure M-REITs properties remain competitive for commercial occupancy. The investment on M-REITs proven that dynamic of location attributes is priority, which support that M-REITs design for a long term investment goal.

International Real Estate Review

he behavioural structure of large and strategic industrial real estate accommodation does not exist in a vacuum. Instead, its fundamental investment values and yields are uniquely affected through the dynamic interaction among exogenous and endogenous forces related to the industrial real estate demand-supply conditions, macroeconomic and institutional polices as well as urban industrial plans. This study aims to understand the dynamic behaviour of the industrial real estate market in Singapore that is slowly transitioning from a capital intensive to knowledge intensive economy. Using data obtained from various sources between 2001Q4-2010Q2 which essentially capture three property cycles, we incorporate a vector autoregressive (VAR) approach to holistically model the industrial real estate market in Singapore with respect to its demand-supply conditions, market capitalization rates which encompass information about rental yields, capital values along with future expectations. This study will help policy makers and developers to understand the structure of the industrial real estate market in Singapore along with respect to its macroeconomic conditions. The results are insightful as the data capture both the public and private markets along with a new hi-tech industrial accommodation (science parks), which is slowly gaining prominence as of the turn at the 21st century as Singapore strives to steer towards a knowledge based industrial economy.

What Accounts for the Differences in Rent-Price Ratio and Turnover Rate? A Search-and-Matching Approach

We build an on-the-house search model and show that two frequently used metrics for the housing market, the rent-to-price ratio (or rental yield) and the turnover rate, are jointly determined in equilibrium. We, therefore, estimate a simultaneous equations system on matched sale-rental pairs, as a housing unit cannot be owner-occupied and renter-occupied at the same time. We confirm that a higher turnover rate is associated with a lower rental yield. We also identify a form of “dichotomy” in empirical determinants of rental yields and turnover rates at the estate level: the demographic structure and past returns affect an estate’s turnover rate, while popularity, human capital, mortgage burdens, and long-run rent growth determine its rental yield. The robustness of our results is established through a series of tests. Our popularity index for 130 estates in Hong Kong, estate rankings, and the brand premia of major real estate developers may carry independent interests.

Estimating quantile-specific rental yields for residential housing in Sydney

Rental yields are widely used by investors, central bankers, researchers, and policy makers to assess and detect disorders in housing markets. This paper proposes a framework to measure rental yields across the distribution, time and space thus providing a comprehensive picture of housing markets. The two-step procedure based on hedonic quantile regression and propensity score matching is designed to fundamentally control for differences in house characteristics. The methodology is applied to micro-data on house transactions and asking rents in Sydney, Australia, between 2004 and 2014. The paper finds large temporal and spatial variation in rental yields, decreasing yields when moving from the low end of the distribution to the top end, and systematically larger yields when restricting the analysis to houses bought-to-let.

Study on Measuring of Real Estate Speculative Bubble: Evidence from Turkey

The investor's expectation of future price increases on real estate is causing to further rise of prices. In the 1990s, Turkey’s real estate price / rental income ratio was around 10, now is between 17-20 years. On the other hand, as a result of insufficient innovation and incentive application of industry, some companies have left their core activity and moved to the consruction industry. Studies using time series analysis with Turkey’s data show that GDP growth and interest rates have a great impact on investment decisions of consruction companies. Using Turkstat, Bloomberg and Eurostat data, the empirical part of this study present the relationship between interest rate and GDP growth and consruction investments. The analysis will continue with cross-city-time-series analysis for a sample of 4 well-developed cities of turkey, in terms of construction investments. Finally, measuring the price-to-earnings ratio, the home price-to-rent ratio, the gross rental yield and the house ownership ratio will be compared to those of the metropolitan cities in Europe, whether there is a real estate bubble in Turkey or not.

Unequal school enrollment rights, rent yields gap, and increased inequality: The case of Shanghai

This paper first builds a simple theoretic model to explore how a special feature of enrollment policy of public primary schools in urban China, the unequal enrollment right between home owners and tenants, would produce rent-yields gap between different housings. The model also predicts that an enrollment policy featuring with tenant discrimination, accompanying with strict credit constraint, would reduce the chance of kids from middle-income families to attend better public schools while allow families with high initial wealth to access better high-quality public education at a lower cost. Using a hedonic pricing model, we find that, in Shanghai, rental yields of housings in neighborhoods associated with reputed public primary schools is on average 0.1–0.35 percentage-point lower than those associated with ordinary ones. We also explore how the rent-yields-gap varies across housing types, locations and changes over time. Nonetheless, our simulation computation suggests that the estimated opportunity cost of holding such schools in Shanghai is generally not a big amount and affordable for many families. Overall, the high entry costs of owing a housing is the major obstacle to access high-quality public primary education in urban China. These findings highlight how an education policy with features of inequality may contribute to education and residential segregation, and then reduce intergenerational mobility.

What Account for the Differences in Rent-Price Ratio and Turnover Rate? A Search-and-Matching Approach

We build an on-the-house-search model and show analytically that the rent-to-price ratio (or rental yield) and turnover rate, which are frequently used metrics for the housing market, are jointly determined in equilibrium. We therefore adopt a simultaneous equation approach on matched sale-rental pairs in our empirical investigation, as a housing unit cannot be owner-occupied and renter-occupied at the same time. Our empirical results confirm a higher turnover rate is associated with a lower rent-to-price ratio, as predicted by the model. Furthermore, our results suggest a form of “dichotomy” in the empirical determinants of rental yield and turnover at the real-estate-development (RED) level: the demographic structure, and past return performance affect its turnover rate, while popularity, human capital environment, mortgage burden, and long run rent growth determine the rental yield. No evidence of “thick market effect” is found. The robustness of our results are established through a series of tests. In addition to these findings, our tractable search-theoretic model, a ranking of more than 130 RED in Hong Kong based on the popularity index we construct, and the estimated brand-premium for different major real estate developers may also carry independent research and practical interests.

How Predictable? Rent Growth and Returns in Sydney and Melbourne Housing Markets

We construct rent-price ratios for houses and units in 82 local government areas in the Sydney and Melbourne markets for the period 1985/86-2015. Using this annual data we employ long-horizon regression techniques and find that rent-price ratios (i.e. rental yields) have predictive content for both future real housing returns and future growth rates of real rents. However rents and returns have greater predictability in Sydney than in Melbourne. Using a variance decomposition for the rent-price ratio implied by the present-value model, we find that variation in rental yields of units in Sydney is almost fully accounted for by expected changes in future rent growth and returns. There appears to be no role for rational bubbles in influencing the prices of Sydney units. In contrast – on average – lesser portions of the variance in rental yields on houses in Sydney (two thirds) and Melbourne (one third) and units in Melbourne (60 percent) is explained by expected future returns and rents. Evidently there is scope for (stochastic) rational bubbles to have affected these markets. Our results point to an important difference between the behaviour of residential housing markets and stock markets. In the stock market, current changes in dividend-price ratios do not appear to reflect important variations in future dividend growth. Our results for Sydney and Melbourne suggest that current changes in rent-price ratios do signal future changes in rent growth.

What Account for the Differences in Rent-Price Ratio and Turnover Rate? A Search-and-Matching Approach

We build an on-the-house-search model and show analytically that the rent-to-price ratio (or rental yield) and turnover rate, which are frequently used metrics for the housing market, are jointly determined in equilibrium. We therefore adopt a simultaneous equation approach on matched sale-rental pairs in our empirical investigation, as a housing unit cannot be owner-occupied and renter-occupied at the same time. Our empirical results confirm a higher turnover rate is associated with a lower rent-to-price ratio, as predicted by the model. Furthermore, our results suggest a form of “dichotomy” in the empirical determinants of rental yield and turnover at the real-estate-development (RED) level: the demographic structure, and past return performance affect its turnover rate, while popularity, human capital environment, mortgage burden, and long run rent growth determine the rental yield. No evidence of “thick market effect” is found. The robustness of our results are established through a series of tests. In addition to these findings, our tractable search-theoretic model, a ranking of more than 130 RED in Hong Kong based on the popularity index we construct, and the estimated brand-premium for different major real estate developers may also carry independent research and practical interests.

The Persistent Element of the No-Arbitrage Framework: Discount Rates, Bases, and Opportunity Cost of Collateral

An ongoing puzzle is that funding rates for derivatives are different than those of cash market instruments having equivalent cash-flows, resulting in large and persistent cash-derivative bases. These bases are arbitrage opportunities. For the prominent case of cross-currency basis, representing violation of Covered Interest Rate Parity (CIP), I show that accounting for a frictionless costly collateral rental yield, an institutional feature of derivative contracts, explains away up to about four fifths of this violation. I build two unique empirical estimates of this yield. The first assumes the actual collateral rental yield is unobservable and generates it from a Kalman filter latent factor affine model. The second assumes that the collateral rental yield is observable and proxies it using differences of the difference in the risk-free and OIS rates between bilateral currencies. I use three different alternative proxies for the risk-free rate - General Collateral repo, BOX, and T-bill rates. Both approaches yield the same results, sharply reduced apparent violations. The collateral rental yield is independent of other costs or risk-based returns due to intermediary frictions, suggesting that previously documented CIP violations mostly reflect institutional details of derivatives contracts rather than frictions.