This textbook, aimed at undergraduate and postgraduate real estate programmes, provides an overview of real estate investment and pricing in a global context with special attention to the diversification of asset types in three parts. Designed as a successor to Will Fraser’s successful student-led investment book, Principles of Property Investment and Pricing, it encompasses the microeconomics of real estate markets and context alongside pricing failures of real estate highlighted by the impact of the global financial crisis, especially with regard to irrationality and risk.
Part 1 focuses on the microeconomics of the real estate sector, covering the complex nature of real estate and the consequences for economic analysis and the operation of the market, the underlying essential processes and principles of real estate investment decision making, including a pricing model, and the significance of real estate cycles and why they occur. Part 2 begins with the characteristics of real estate as an investment, differentiated between direct and indirect investment, and making comparisons with alternative stock market assets, then examines real estate investors and their objectives, including financial institutions, REITs and other indirect vehicles. Additionally, it sets out the frameworks within which real estate investment decisions are made in relation to other investments and focuses on decision-making processes and the practicalities of performance measurement. Emerging real estate debates are discussed in Part 3. These chapters are primarily forward-looking to the implications and challenges for real estate investment, including the consequences of recent aspects of regulation, changes to occupier demand, partly driven by technology but also sustainability pressures, the logic and difficulties of international investment, with a particular focus on emerging markets.
Author(s): Colin A. Jones, Edward Trevillion
Publisher: Palgrave Macmillan
Year: 2022
Language: English
Pages: 319
City: Cham
Preface
Contents
List of Figures
List of Tables
Part IThe Real Estate Sector
1 Introduction
Introduction
What Do We Mean by Investment?
Property as an Investment
The Financial Environment
Property Indices and Performance Measurement
User Demand and the Determination of Rental Value
Property Market Dynamics
Book Structure
Chapter 2 Principles of Investment
Chapter 3 The Macroeconomy and Real Estate Cycles
Chapter 4 Characteristics of Real Estate Investment
Chapter 5 Investors
Chapter 6 Market Efficiency and Asset Pricing
Chapter 7 Portfolio Theory and Property in a Multi-Asset Portfolio
Chapter 8 Property Portfolio Management
Chapter 9 The Internationalisation of Property Investment
Chapter 10 State Intervention and Implications for Investment
Chapter 11 Investment Consequences of Changing Occupier Needs and Obsolescence
Chapter 12 Real Estate Opportunities and Challenges
Chapter 13 Future Research and Dissertations
Readings
2 Principles of Investment
Introduction
Defining Risk and Return
Yields
Risk Premium
Yields and Capital Values
Price, Value and Worth
Theory of Pricing—Discounted Cash Flow Framework
Gearing, Risk and Returns
Gearing a Notional Example
Real World Examples
The Maturation Process
Summary
Learning Outcomes
Readings
3 Macroeconomy and Real Estate Cycles
Introduction
Role of Real Estate in the Economy
International History of Cycles
Commercial Real Estate Cycles and Development Time Lags
Skyscrapers and Development Cycles
Availability of Finance and Investment Cycles
Forecasting and Cycles
Summary
Learning Outcomes
Case Study The ‘Classic’ Commercial Real Estate Cycle
Reading
Part IIReal Estate Investment
4 Characteristics of Real Estate Investment
Introduction
Indirect versus Direct Real Estate Investment
Listed and Unlisted Investments
Types of Real Estate Investment
Characteristics of Real Estate Investments Relative to Stock Market Securities
Comparison with Stock Market Investments
Comparison of Real Estate and Stock Markets
Investment Spectrum and Yield Gaps
The Wider Logic of Real Estate Investment
Residential as an Investment Class
Characteristics of Alternative Investments
Summary
Learning Outcomes
Reading
5 Investors
Introduction
History of Commercial Real Estate Investment
Types of Financial institutions and Investment Priorities
General Insurance
Life Assurance
Pension Funds
A Worldwide Perspective on Pension Funding
Real Estate Investment Trusts (REITs)
Property Companies
Investment and Unit Trusts
Limited Partnerships (LPs)
Private Equity and Hedge Funds
Exchange Traded Funds (ETF)
The Size and Structure of UK Investment Markets
Summary
Learning Outcomes
CASE STUDY Examples of Hedge Fund Activities
Privatisation of German Social Housing
Purchase of European Real Estate Debt After the Global Financial Crisis
Reading
6 Market Efficiency and Asset Pricing
Introduction
Efficient Markets and their Significance
Efficient Market Hypothesis
Fama’s Degrees of Efficiency
Tests for Market Efficiency
Property Market Efficiency
Market Transparency
Rational and Irrational Markets
Summary
Learning Outcomes
Case Study A Property Boom in an Irrational Market—The UK Market in the First Decade of Twenty-First Century
A Property Boom
The Consequences of Overoptimism
An Irrational Bust?
Aftermath of the Global Financial Crisis
Reading
7 Portfolio Theory and Property in a Multi-Asset Portfolio
Introduction
Risk Reduction, Diversification and the Portfolio
Don’t Put All Your Eggs in One Basket!
Property Correlations with Other Asset Classes
Diversification
Modern Portfolio Theory
The Efficient Frontier
Investor’s Preferences and Indifference Curves
Post-Modern Portfolio Theory
The Capital Asset Pricing Model (CAPM)
Simplifying Assumptions
Main Relationships
Practical Limitations to CAPM
CAPM and Property
Property’s Target Rate of Return
Property in a Multi-Asset Portfolio
Property as an Asset Class
Evidence of Asymmetric Returns
Property as an Inflation Hedge
Overview of Portfolio Theory and Practicalities
Summary
Learning Outcomes
Appendix
Correlation Coefficient Formula
Calculating the Efficient Frontier
Reading
8 Property Portfolio Management
Introduction
The Property Portfolio Investment Process
The Asset Decision
First Steps in Portfolio Construction
Property Portfolio Investment Approaches
Benchmarking
Peer Comparison
Relative Return
Absolute Return
Portfolio Strategy and Property Selection
Analysis of a Portfolio’s Performance and Reviews of Strategy
Performance Measurement
Reviews of Current and Future Investment Strategy
Problems with the Construction of Property Indices
Portfolio Forecasting
Additional Management Issues
Summary
Learning Outcomes
Case Study: The Benchmarks of a UK Balanced Multi-Asset Fund
Appendix 1: Performance Measurement
Appendix 2: Practicalities of Forecasting
Reading
9 The Internationalisation of Property Investment
Introduction
Globalisation
Real Estate Market Segmentation and Integration
The Case for International Real Estate Investment
Formal and Informal Barriers to Overseas Investment
Currency Risk
Taxation Issues
Political and Title Risk
Global Real Estate Investment
Internationalisation of Real Estate Cycles
Market Maturity
Indicators of Maturity
Internationalisation and Property Related Practices
Lease Terms
Tenancy and Landlord Obligations
Rent Reviews
International Valuation Methods and Practices
Summary
Learning Outcomes
Case Studies
Case Study 1: Global Cities
Case Study 2: Property Markets in Asia–Pacific
Case Study 3: Emergent Markets in Central and Eastern Europe (CEE)
Case Study 4: Political Risk and Recent UK Referendums
Reading
Part IIIDeveloping Real Estate Paradigms
10 State Intervention and Implications for Investment
Introduction
Planning and Urban Management Policies
Government Green Agendas
Market Regulation
Deregulation
Deregulation of Banks
International Banking Regulations
Basel I
Basel II
Basel III
Basel IV
Summary
Learning Outcomes
Case Study: Application of Environmental and Social Governance (ESG)
Reading
11 Investment Consequences of Changing Occupier Needs and Obsolescence
Introduction
Defining and Measuring Obsolescence
Green Labelled Buildings
Investment Consequences
Retail Change including Online Sales
Investment Consequences
ICT and Warehousing
Investment Consequences
Hot Desking and Demand for Offices
Investment Consequences
Summary
Learning Outcomes
Case Study Serviced Offices—We Work
Reading
12 Real Estate Opportunities and Challenges
Introduction
The Impact of Pension Reform on Real Estate Investment
What Are Defined Benefit and Defined Contribution Pension Schemes?
Investment in DC and DB Schemes
Impacts and Challenges for Real Estate Investment in Pension Schemes
Consequences of the Global Financial Crisis
Sustainable Valuations
Application of Sustainable Valuations in the UK
Challenges
The Impact of Behaviour in Real Estate Markets
But Is It True That Individuals Do a Good Job at Evaluating Probabilities and Making ‘Rational’ Choices?
Challenges
Practicalities of Transaction-Based Versus Market Price Indices
Appraisal-Based Indices
Transaction-Based Indices
Challenges and Opportunities
Alternative and Operational Real Estate
Investment Perspectives on Selected Alternative Trade Related Real Estate Types
Example 1 Hotels
Example 2 Petrol Stations
Example 3 Self-Storage
A Comparison of Traditional and Alternative Real Estate Investments
Alternative Assets, Investor Operating Models and Operational Real Estate
Overview
PropTech, AI and the Commercial Real Estate Industry
PropTech 1.0
PropTech 2.0
PropTech 3.0
Summary
Learning Outcomes
Reading
Part IVFuture Research and Dissertations
13 Concluding Thoughts and Areas for Future Research
Future Research Areas
Long-Term Consequences of BREXIT
To What Extent Has the GFC Impacted on the Investment Process in the UK?
The Use of Behavioural Economics to Develop and Model New Forecasting Techniques
The Application of Blockchain Techniques to Land Registration and the Scope for Fractionalisation of Real Estate
The Development of Maturity/Transparency Criteria More Appropriate for Developing Countries
The Impact of Operational Leases on Future Real Estate Investment
The Ability of Institutional Residential Investment to Provide Affordable Housing
Development and Expansion of the Transaction-Based Measures of Economic Activity
Potential Dissertation Topics
Final Thoughts
Glossary
Index
