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PurposeRecognising that different property sectors have distinct risk-return characteristics, this paper assesses whether changes in the level and volatility of short- and long-term interest rates differentially affected excess returns of sector-specific Real Estate Investment Trusts (REITs) in the Pacific Rim region between July 2006 and December 2018. The strategic property risk management implications for sector-specific REITs are also identified.Design/methodology/approachDaily excess returns between July 2006 and December 2018 are used to analyse the sensitivity in the level and volatility of interest rates for REITs among office, retail, industrial, residential and specialty REITs across the USA, Japan, Australia and Singapore. The generalised autoregressive conditionally heteroskedastic in the mean (GARCH-M) methodology is employed to assess the linkage between interest rates and excess returns of sector-specific REITs.FindingsCompared with diversified REITs, sector-specific REITs were less sensitive to short- and long-term interest rate changes across the USA, Japan, Australia and Singapore between July 2006 and December 2018. Of sector-specific REITs, retail and residential REITs were susceptible to interest rate movements over the full study period. On the other hand, office and specialty REITs were generally less sensitive to changes in the level and volatility of short- and long-term interest rate series across all markets in the Pacific Rim region. However, the interest rate sensitivity of industrial REITs was somewhat mixed. This sector was sensitive to interest rate movements, but no comparable evidence was found since the onset of GFC.Practical implicationsThe insignificant exposure to interest rate risk of sector-specific REITs may imply that they have a stronger interest rate risk aversion and greater hedging benefits than their diversified counterparts, particularly for office and specialty REITs. The results support the existence of REIT specialisation value in the Pacific Rim region from the interest rate risk management perspective. This is particularly valuable to international property investors constructing and managing portfolios with REITs in the region. Property investors are advised to be aware of the disparities in the magnitude and direction of sensitivity to the interest rate level and volatility of REITs across different property sectors and various markets in the Pacific Rim region. This study is expected to enhance property investors' understanding of interest rate risk management for different property types of REITs in local, regional and international investment portfolios.Originality/valueThe study is the first to assess the interest rate sensitivity of REITs across different property sectors and various markets in the Pacific Rim region. More importantly, this is the first paper to offer empirical evidence on the existence of specialisation value in the Pacific Rim REIT markets from the aspect of interest rate sensitivity. This research may enhance property investors' understanding of the varying interest rate sensitivity of different property types of REITs across the USA, Japan, Australia and Singapore.

Recognising the rapid increase in housing prices and the presence of socio-economic and demographic disparities that often characterise a metropolitan city, we adopted a sub-city approach and deplo...

PurposeHousing prices in Sydney have increased rapidly in the past three decades. This leads to a debate of whether Sydney housing prices have departed from macroeconomic fundamentals. However, little research has been devoted to this area. Therefore, this study aims to fill this gap by examining the long-run association between housing prices and market fundamentals. Further, it also examines the long-run determinants of housing prices in Greater Sydney.Design/methodology/approachThe analysis of this study involves two stages. The first stage is to estimate the presence of long-run relationship between housing prices and market fundamentals with the Johansen and Juselius Cointegration test. Thereafter, the determinants of housing prices in Greater Sydney is assessed by using a vector error correction model.FindingsThe empirical results show that Sydney housing prices are cointegrated with market fundamentals in the long run. In addition, there is evidence to suggest that market fundamentals such as gross disposable income, housing supply, unemployment rate and gross domestic product are the key long-run determinants of Sydney housing prices, reflecting that Sydney housing prices, in general, can be explained by market fundamentals in the long run.Research limitations/implicationsThe findings enable more informed and practical policy and investment decision-making regarding the relation between housing prices and market fundamentals.Originality/valueThis paper is the first study to offer empirical evidence of the degree to which the behaviour of housing prices can be explained by market fundamentals, from a capital city instead of at a national level, using a relatively disaggregated dataset of housing price series for Greater Sydney.

Despite numerous studies investigating house price diffusion between regional cities, few have considered a spillover effect among housing submarkets within a metropolitan city. This study ...

The importance of interest rates, in both financial markets and the broader economy, was clearly highlighted during and subsequent to the financial crisis of 2007-09. This paper examines the sensitivity of seven public real estate markets in Europe from 1995 to 2013. Europe is a particularly interesting market to look at in this context. Badly impacted during the financial crisis, it has been further affected by the sovereign debt crisis within the Eurozone. The introduction of the Euro and a single monetary policy within the Eurozone is a complicating factor that raises additional issues. The results highlight that, with one exception, the markets display significant sensitivity in terms of both returns and volatility. The results are, however, sensitive in both a temporal sense and to the interest rate-yield curve proxy used.

Australian sector-specific REITs (A-REITs) have grown significantly in recent years. This raises the issue of whether sector-specific A-REITs play a value-added role compared with diversified A-REITs. Despite the rapid growth of sector-specific A-REITs, limited studies have been devoted to it. Hence, this study aims to compare sector-specific A-REITs with diversified A-REITs by assessing risk-return performance, portfolio diversification benefits and portfolio allocation strategies for sector-specific A-REITs over January 2000 - August 2018. The results suggest that sector-specific A-REITs play a value-added and strategic role in an Australian mixed-asset portfolio, with superior risk-adjusted returns, enhanced portfolio diversification benefits and increased portfolio returns compared with that for diversified A-REITs. This supports the notion of specialisation value in an A-REIT context. The practical listed property investment implications regarding the value-added and strategic role of sector-specific A-REITs are also identified. Refereed/Peer-reviewed

Real estate securities have distinct characteristics that differentiate them from stocks generally. Key amongst them is that underpinning the firms are both real and investment assets. Therefore, the connections between the underlying macroeconomy and listed real estate firms are of heightened importance. To consider the linkages with macroeconomic fundamentals, we extract the ‘low-frequency’ volatility component from aggregate volatility shocks in 11 international securitised real estate markets using Engle and Rangel's (2008) Spline-GARCH model. The analysis reveals that the low-frequency volatility of real estate securities has strong and positive association with most of the macroeconomic risk proxies examined. Differences between real estate securities and common stocks have also been identified.

Purpose The purpose of this study is to examine the linkages between Australian house prices and stock prices under the Toda and Yamamoto test framework. Specifically, it investigated whether there is a capital switching effect between house prices and stock prices. Design/methodology/approach This study examined the linkages between house prices and stock prices under the Toda and Yamamoto test framework. To accommodate the impact of the global financial crisis (GFC), a sub-period analysis was undertaken. To assess the impact of investor structure, the tests were also performed for small cap stocks and large cap stocks individually. Findings The empirical results reveal a negative lead–lag relationship between house prices and stock prices in Australia, suggesting the existence of capital switching activities between housing and stocks. The impact of the GFC on the lead–lag relationship between house prices and stock prices is also documented. Before the crisis, a causality transmission was running from house prices to stock prices, whilst stock prices appeared to lead house prices after the crisis. The capital switching activities between housing and stocks are more evident for small cap stocks. Originality/value This study is the first to examine the linkages between house prices and stock prices under the Toda and Yamamoto test framework. This is the first study to explore the impacts of the GFC on the lead–lag relationship between the two asset prices under the capital switching framework. This study is also the first to provide empirical evidence regarding the existence of capital switching activities between housing and stocks. In addition, the impact of investor structure on the interrelationship between the two asset prices is examined for the first time under the capital switching framework.

This article analyses the cultural, housing and intergovernmental politics of individual foreign investment in Australian real estate. The first section provides a brief history of Australia's housing system and shows the historical trend toward housing affordability ‘problems’ in Sydney and Melbourne. This review interrogates the claim Chinese investors compounded Australia's housing affordability problem after the global financial crisis. The second more substantive section draws on interview, real estate website and media data to demonstrate how the Australian housing system and Chinese and Australian actors enabled Chinese investment in Australian real estate. The third section demonstrates how a minority of Australian residents and some journalists are contesting Chinese foreign investment in Australian real estate. This study shows how contemporary global real estate relations complicate the politics of Asian real estate investment in Anglo-sphere countries.

Declining homeownership rates as observed in many western countries have direct and indirect implications for the broader economy; hence, governments have been seeking an effective solution to address this decline. One of the major challenges is the decline in overall homeownership rates with an increasing proportion of households deciding to rent rather than purchase. However, it is surprising that the impact on the housing market following the introduction of a first-time housing subsidy scheme has received relatively little attention. This study addresses this knowledge gap by examining the relationship between (1) housing market intervention based on first-time owner subsidies in a global city and (2) the level of house price volatility in the broader market. For example, the Australian government has implemented different policies designed to ease housing stress among first-time buyers; one high-profile policy was the First-time buyer Grant or First Home Owner Grant (FHOG) in which a cash payment or ...

Purpose– This study aims to extend the current literature by examining the inflation-hedging effectiveness of Malaysian residential property in the short run and long run. Malaysia is an emerging market and has some unique characteristics. Therefore, a dedicated study in this market is critical.Design/methodology/approach– The analysis of this study involves two stages. The first stage is to estimate the inflation-hedging ability of Malaysian residential property in the short run. The Fama and Schwert model was employed. Thereafter, the long-run inflation-hedging effectiveness was assessed by using a dynamic ordinary least squares (DOLS) model.Findings– The Fama and Schwert tests reveal that Malaysian residential property does provide some satisfactory hedge against the expected inflation component over the short run. However, variations are evident among different types of residential property. The DOLS results provide strong evidence to support that housing is an effective hedge against the expected inflation in the long run, whereas no comparable evidence is found for the unexpected inflation component.Practical implications– The findings enable more informed and practical investment decision-making regarding the role of housing in inflation risk management.Originality/value– This paper is the first study to offer empirical evidence of the inflation-hedging attributes of Malaysian residential property. Moreover, the inflation-hedging effectiveness of different types of residential property is also compared for the first time.

In this study, we examine the volatility pattern of Australian housing prices over an extended time frame. A component-generalized autoregressive conditional heteroscedasticity (C-GARCH) model was ...

In 2007 futures contracts were introduced based upon the listed real estate market in Europe. Following their launch they have received increasing attention from property investors, however, few studies have considered the impact their introduction has had. This study considers two key elements. Firstly, a traditional Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model, the approach of Bessembinder & Seguin (1992) and the Gray’s (1996) Markov-switching-GARCH model are used to examine the impact of futures trading on the European real estate securities market. The results show that futures trading did not destabilize the underlying listed market. Importantly, the results also reveal that the introduction of a futures market has improved the speed and quality of information flowing to the spot market. Secondly, we assess the hedging effectiveness of the contracts using two alternative strategies (naïve and Ordinary Least Squares models). The empirical results also show that the contracts are effective hedging instruments, leading to a reduction in risk of 64 %.

PurposeThe hedging effectiveness of real estate investment trust (REIT) futures as a critical issue in response to the global REIT market has been extremely volatile in recent years, however few studies have been placed on this area. This study aims to fill in this gap and examine the hedging effectiveness of Australian and Japanese REIT futures over 2002‐2010.Design/methodology/approachThe analysis of this study involves two stages. The first stage is to estimate optimal hedge ratios. A variety of hedging methods is employed, including a traditional hedge, an ordinary least squares (OLS) model and a bivariate GARCH model. Thereafter, the hedging effectiveness of these strategies is assessed individually.FindingsThe empirical results show REIT futures are effective hedging instruments in which a risk reduction of 37 per cent‐78 per cent (34 per cent‐52 per cent) for Australian (Japanese) REITs is evident. Importantly, the results also reveal that REIT futures outperform other hedging instruments in which a weaker risk reduction is found by stock, interest rate and foreign currency futures contracts. Moreover, the hedging effectiveness of REIT futures is dynamic and varies over time.Practical implicationsThe findings enable more informed and practical investment decision‐making regarding the role of REIT futures in risk management.Originality/valueThis paper, as far as the authors are aware, is the first study to offer empirical evidence of the risk‐reduction effectiveness of REIT futures. The hedging effectiveness of REIT futures is also compared to other hedging instruments for the first time.

The use of valuations in the major property indices has seen valuation-smoothing, leading to under-stated levels of property risk. De-smoothing the property returns has become the standard procedure to obtain more appropriate property risk estimates. The impact of valuation-smoothing on property risk and correlations are assessed for Australian commercial property over 1995–2009. The resulting de-smoothed property risk estimates are shown to need to be increased significantly to account for this impact of valuation-smoothing. The impact of valuation-smoothing on property risk is also shown to vary considerably over time and is influenced by the level of property valuation information available. The resulting impact of valuation-smoothing and more appropriate property risk estimates on the level of property in the mixed-asset portfolio is also assessed. Importantly, even after adjusting for valuation-smoothing, Australian commercial property is still seen to play a significant and important role in...

This study examines the volatility series of housing supply in Australia. A Generalised Autoregressive Conditional Heteroskedasticity-in-Mean (GARCH-M) model is employed to analyse the volatility series of Australian housing supply over the study period of 1974-2010. The results show the volatility of housing starts is negatively linked to housing starts, suggesting that higher uncertainty does lower housing starts. The results also reveal that the uncertainty of housing starts is also captured by the volatilities of interest rates and construction costs. Therefore policy makers should monitor and attempt to minimise the volatility of housing supply. These steps will enhance housing construction activities and increase the availability of housing supply to potential home buyers.

Executive Summary. This study aims to examine the volatility spillover in Australian REIT futures over the study period of 2004–2008. An Exponential-Generalized Autoregressive Conditional Heterosce...

This study aims to examine the ability of downside beta in explaining the Australian direct property returns with addressing the smoothing issue. Utilising the quarterly IPD/PCA Australian property indices over 1995-2008, the results reveal that smoothed and unsmoothed downside betas are statistically distinguishable. The results also show that unsmoothed downside beta is positive and statistically significant related to Australian direct property returns, while smoothed downside beta exhibits a negative link with the returns, indicating that appraisal-smoothing has profound implications on the efficiency of downside beta. The results are robust after controlling for the different types of property and different smoothing parameters, confirming that a positive premium is required by direct property investors for compensating higher downside losses. These findings provide further insights into the pricing of valuation-based property indices.

Executive Summary. This study examines the importance of downside beta when seeking to explain variations in listed property trust (LPT) returns in Australia between 1993 and 2005. The results reve...

Extensive real estate studies have demonstrated the linkages between direct property and capital assets, particularly REITs by emphasising on the common movements in prices. However, the study of volatility spillover between these assets is relatively limited. This study aims to investigate the volatility linkages between Australian commercial property and capital assets by utilising generalised autoregressive conditional heteroskedasticity (GARCH) and Exponential GARCH (EGARCH) over the study period 1985-2006. The results reveal that direct commercial property is strongly influenced by LPTs and bonds. It is also shown that direct property is asymmetric to negative and positive news. These findings have provided additional insights into the knowledge base of real estate risk and portfolio management.

This study examines the inflation-hedging properties of European real estate stocks in developed and emerging markets over 1990 to 2011. The Fama and Schwert model and a dynamic ordinary least squares (DOLS) regression were employed to study the inflation-hedging characteristics of European real estate stocks over the short run and long run. The empirical results show little inflationhedging ability of European real estate stocks over the short run. Over the long run, developed real estate stocks provide a positive inflation hedge against expected inflation, while no similar evidence is found in the emerging markets. The findings suggest that the inflation-hedging properties of real estate stocks are related to the institutional involvement in the real estate stock markets. The finding could have profound implications to institutional investors. First Publish Online: 20 Jun 2014

PurposeThis paper aims to identify and examine the determinants of downside systematic risk in Australian listed property trusts (LPTs).Design/methodology/approachCapital asset pricing model (CAPM) and lower partial moment‐CAPM (LPM‐CAPM) are employed to compute both systematic risk and downside systematic risk. The methodology of Patel and Olsen and Chaudhry et al. is adopted to examine the determinants of systematic risk and downside systematic risk.FindingsThe results confirm that systematic risk and downside systematic risk can be individually identified. There is little evidence to support the existence of linkages between systematic risk in Australian LPTs and financial/management structure determinants. On the other hand, downside systematic risk is directly related to the leverage/management structure of a LPT. The results are also robust after controlling for the LPTs' investment characteristics and varying target rates of return.Practical implicationsInvestors and real estate analysts should conscious with the higher returns from high leverage and internally managed LPTs. Although there is no evidence that these higher returns are related to higher systematic risk, there could be the compensation for higher downside systematic risk.Originality/valueThis study provides invaluable insights into the management of real estate risk in Australian LPTs with implications for REITs in other countries. Unlike previous studies of systematic risk in REITs or LPTs, this is the first study to assess downside systematic risk and explore the determinants of downside systematic risk in LPTs.