The restructuring of the institutional real estate portfolio in the UK

Real estate investment portfolios of financial institutions have seen dramatic changes over the last three decades or more. Historically such property investment decisions have been seen within a portfolio diversification paradigm that has sought to balance risk and return. This paper considers the role of the supply of assets in the determining and constraining the UK institutional portfolio. The supply of real estate assets not only expands during property booms but has also been transformed by a long term urban development cycle as cities adapt to cars and the ICT revolution that has brought new property forms. The research examines long term trends in investment change by disaggregating into ten property forms rather than the usual three land use sectors. It then assesses to what extent investment patterns can be explained in terms of portfolio theory, short term net returns of individual sectors or driven by the supply of real estate assets. It concludes that the supply of real assets is an overlooked explanation.     

Duration and convexity in commercial property lease management

Summary

This paper examines the application of portfolio immunization strategies to leasehold real estate investments. It illustrates how measures such as duration and convexity can be used to improve the management of property portfolios and it also shows how the application of these statistical techniques can make more explicit the comparison of property assets with other investment media.     

Capitalization of Farm Policy Benefits and the Rate of Return to Policy-Created Assets: Evidence from California Dairy Quota

The rate of return to ownership of California dairy quota is about 27% per year—well above that of typical financial assets, but in line with other measured returns to agricultural quotas. Ownership of dairy quota does not contribute positively to total variation of typical portfolios, including those of dairy farm assets, and so contributes little or no portfolio risk. A plausible alternative hypothesis for the high rate of return is that quota owners see significant risk of policy change that would reduce future quota values. That is, they face default risk in quota ownership.     

Should Saskatchewan Farmland be Part of Your Investment Portfolio?

Farmland has been a good investment over the past 30 years, as part of an internationally diversified medium‐risk portfolio. For average or medium levels of risk, farmland can enhance the financial performance of an investment portfolio. Investors who choose to maintain a low‐risk portfolio will not include farmland and, similarly, the gains at the high‐risk level are also very minimal. The financial gains from farmland are a result of its negatively correlated returns with other equity markets. When added to an equity portfolio, the risk is reduced while maintaining the same rate of return on investment. This is especially true of the medium‐risk portfolios. Farmland investment has associated problems including illiquidity, poor marketability and asset lumpiness. A potential solution to these problems is to allow the organization of a Saskatchewan (or Canadian) farmland mutual fund. L'achat de terres agricoles s'est révélé un bon placement dans les 30 dernières années dans le cadre d'un portefeuille à risque modéré internationalement diversifié. Dans la catégorie de risque moyen ou modéré, la propriété de terres agricoles peut accroître le rendement économique d'un poriefeuille de placement. Les investisseurs qui choisissent de maintenir un poriefeuille à faible risque ne s'intéresseront pas aux terres agricoles, et par ailleurs, les gains au niveau de risque élevé sont également trés maigres. Les gains financiers tirés de la propriété de terres agricoles sont la résultante de la corrélation négative du rendement économique avec celle des autres marchés de valeurs. En ajoutant les terres agricoles à un portefeuille de valeurs mobilig?res, on abaisse le niveau de risque tout en conservant le même taux de rendement sur les placements. C'est particulièrement vrai des portefeuilles à risque modéré. Les placements dans les terres agricoles component des inconvénients comme l'illiquidité, la difflculté de revendre et l;indivisibilité. Une solution à ces proxblèmes serait d'autoriser la constitution d'un fonds mutuel de terres agricoles, soit pour la province de Saskatchewan ou pour l'ensemble du pays.     

The 4% rule: Does real estate make a difference?

This paper examines the wealth maximisation and preservation effects of including commercial real estate in retirement-phase portfolio management. Prior research addresses the role of real estate during the wealth-accumulation phase of the investor lifecycle; however, little is known about the contribution of real estate during the invest-and-spend, or decumulation, phase. To address this issue, we estimate short-fall risk based on the widely known 4% Rule. We use pricing data for multiple asset classes and simulation techniques, combined with a robust correlation structure, to examine: short-fall risk sensitivity to alternative spending rules; the impact of public vs. private real estate allocations; wealth preservation as an investment objective; and the effect of real estate on upside, or wealth maximisation, potential. We find short-fall risk in a decumulation portfolio decreases with substantial allocations to real estate. This result holds for a portfolio including either public or private real estate. Additionally, and under most conditions, the best performing decumulation-phase portfolios include a real estate allocation with both public and private real estate exposure. These results have significant implications for investors, whether they be retirees, plan administrators or endowments, as well as financial economists studying the lifecycle of investment decisions.     

Should farmers invest in financial assets as a risk management strategy? Some evidence from New Zealand*

This study explores the potential for risk reduction by New Zealand farmers through the diversification of their farm asset portfolios to include financial investments such as ordinary industrial shares, government bonds and bank bills. Low correlations between rates of return on farm and these financial assets suggest that significant reduction of income variability might follow their inclusion in farmers’ portfolios. Stochastic efficiency analysis is used to analyse alternative portfolios of ordinary shares, government bonds and bank bills and New Zealand farmland, using coefficients of absolute risk aversion derived from a negative exponential utility function. The results suggest that those farmers showing high degrees of risk aversion would gain utility by including financial assets in their portfolios. Deregulation of the New Zealand economy in the 1980s appeared to reduce the potential gains from diversification. Bonds rather than ordinary shares are the main contributors to portfolios which maximise utility for individuals classified as ‘somewhat’ risk averse.     

Investment decision-making under economic policy uncertainty

It is widely established that economic policy uncertainty (EPU) affects investment decisions and performance, yet research in this area has overlooked the direct property investment market. This article seeks to rectify this and proposes a multistage multilevel analytical framework to offer new insights and a richness of findings. Using a news-based measure of EPU in the United Kingdom, and controlling for economic conditions, a national-level analysis reveals some evidence of Granger-Causality between EPU and total returns, indicating that pricing is responsive to uncertainty. These findings suggest that EPU is an important risk factor for direct property investments, with pricing implications. Differences in data and performance measure are important, however, with income returns unresponsive. A micro-level investigation begins to reveal some of the asset-pricing decisions underpinning the national results, indicating investors’ concerns for income streams are consistently high, regardless of varying EPU. Pricing can also cause changes in EPU, such as in the retail and industrial markets (increasingly linked through logistics) reflecting sector-specific stakeholder groups and newsworthy issues. This evidence highlights how important it is for policy-makers to understand the complex and bi-directional relationship, that indecision can undermine investment confidence and cause investment market volatility, in turn raising EPU.     

The idiosyncratic risks of a Shariah compliant REIT investor

This paper investigates the impact of Shariah compliant investment principles on the idiosyncratic risks of a Shariah compliant REIT investor. The importance of idiosyncratic risks in explaining cross-sectional returns of a constructed Shariah compliant REIT investor’s portfolio is further examined in this paper. In all constructed portfolios examined, there is a positive and significant relationship between expected idiosyncratic volatility and expected REIT returns of the constructed Shariah compliant portfolio (GCC Shariah compliance standards). This result is consistent and persistent after robustness tests are carried out. As such, idiosyncratic risks are an important factor to consider in the pricing of Shariah compliant REIT stock returns. On further examination, the significant relationship as seen in the constructed Shariah compliant portfolio can be explained from the firm-specific risks of the residential REIT sector which is the most dominant sector during the period of investigation. The implications of these results also point to the importance of Shariah compliance standards and screening methods which is a significant feature associated with the understanding of the relationship of idiosyncratic risks on expected REIT returns of Shariah portfolios. Results show contrasting results between a less-restrictive and restrictive Shariah compliant portfolio. We find a significant relationship between expected returns and the idiosyncratic risks specifically in the restrictive Shariah compliant portfolio.     

African Perspectives on China–Africa: Modelling Popular Perceptions and their Economic and Political Determinants

China's recent political and economic inroads into Africa have generated much interest in the current literature, with scholars and policymakers endeavouring to assess the merits and risks implicit in this renewed engagement. Absent from the literature, however, are systematic analyses of African perceptions of these rapidly growing China–Africa links, and what determines these perceptions. This article fills this void by examining not only African attitudes towards China's African presence, but also investigating the considerations that inform these views. Using multi-level modelling techniques, this article estimates the effects of Chinese foreign direct investment (FDI), Sino-African trade and notions of democracy and human rights on African attitudes towards “China-in-Africa”. The results suggest that Africans' views of China are nearly equivalent to those that they hold vis-à-vis Western countries. The perceived impact of imports from China has a negative effect. However, this effect is counter-balanced by perceptions of China's impact on poverty alleviation—in line with its greater focus on economic, social and cultural, as opposed to civic and political human rights—in particular through FDI. Among those who value civic and political human rights, in contrast, attitudes towards China are less favourable. This finding is echoed with respect to democratic governance, though the effect is less stable. The results are derived from Afrobarometer data covering 20 African countries.     

Understanding property market operations from a dual institutional perspective: The case of Lagos,Nigeria

This paper examines the Nigeria Land Use Act and considers how provisions of the Act inform and influence traditional landholding systems, the operation of the commercial real estate market, and the activities of the “omo-onile.” The research adopts a qualitative strategy and combines analysis of legal statute with in-depth, semi-structured interviews with market participants active in different capacities within the land and property markets of Lagos, Nigeria.The paper identifies a number of inconsistencies in the provisions of the Act and concludes that the recognition given to the traditional landholding system by the Act has not been effective in tackling informality and illegality in Lagos land and property markets.The paper provides insight into how informal institutions of norms, culture, and conventions of a real estate market characterize property ownership and affect transaction processes. This study shows how informal institutions may be used to circumvent formal institutions of a market when formal rights to property are poorly delineated and assigned. In these conditions market actors will incur higher transaction costs in the process of policing transactions and enforcing contractual agreements.     

Time to completion in the Lagos commercial real estate market: an examination of institutional effects

This study explores how institutions affect the process of investment and the time it takes to buy and sell commercial property in Lagos, Nigeria. We isolate institutional factors that impact transaction efficiency and provide a snapshot of the process with average transaction times for the largest commercial real estate market in the most populous country in Africa. This study adopts a qualitative approach and relies on information collected from semi-structured interviews with 36 senior level individuals active in the Lagos commercial real estate market. Among our findings, we note the commercial real estate transaction process is divided into seven distinct stages and the average time to complete an acquisition across all stages (all property types) is 306 days. Title registration/perfection stage takes the longest time (around 132 days) and represents a significant risk to investors. We argue this is a consequence of imperfections in the formal institutions of title registration.     

Land restitution and communal property associations: The Elandskloof case

Elandskloof was the first land restitution case in post-apartheid South Africa in which the government returned land to a community. The communal property association became dysfunctional, and the courts placed it under government administration. In its haste to return land to the community in the aftermath of the apartheid system the state did not set up comprehensive planning and consultative processes within government institutions, the beneficiary community and NGOs before returning the land. Consequently, the beneficiaries entertained expectations of resources that have not been met due to regulatory and institutional constraints, which have fuelled intense anger. In addition, internal community conflicts over membership eligibility and access to power and resources have bedevilled the project. The advantage of communal property associations is that they offer great flexibility in how a community can set up its land tenure system and the associated rules. However, lack of regulatory structure at the outset places great strain on a governing committee which has to create the rules, police them, judge them and administer sanctions. In Elandskloof, this occurred while the community was being reconstructed and the legitimacy of the governing committee itself was challenged. A major lesson is that the administrative structure, membership boundaries, and the land tenure rules should be established prior to land being returned to a community, and administrative powers need to be separated, at least until the community has settled. The case also raises policy questions about government administration of dysfunctional communal property associations.     

A portfolio analysis of incentive programmes for conservation,restoration and timber plantations in Southern Ecuador

This paper uses portfolio analysis to study how the Ecuadorian incentive programme for forest conservation and restoration (Socio Bosque), and an incentive programme for timber plantations, may reduce income risk and/or maximise returns for a given level of risk for farmers in the municipality of Loja. The main existing land use in the research area is milk production on pasture, with some farmers having forest land. Our results suggest that most farmers would significantly increase the area under conservation and/or restoration as part of their risk reduction strategies, compared to a decision based solely on expected returns. However, in land use allocations that maximise the return per unit of risk, a small group of milk producers without forest would continue milk production on most of their land. In addition, milk producers with forest would significantly decrease deforestation under the land use allocations made when conservation incentives are available. Against this we also identify a likely shift of milk production from existing pasture to new pasture established on deforested land, which provides evidence of a potential ‘leakage effect’. In addition, the incentive programmes would only lead to small areas of tree plantations being established. None of the land use combinations (portfolios) analysed would increase the income of all households to above the poverty line, as the monetary incentives are too low and many farms are too small. For forest holders all the land use combinations we studied would have a positive impact on income, but we observed a negative impact on household income for milk producers without forest. For producers without any forest, there seems to be a trade-off between maximising household income and risk reduction through combining incentives for restoration and tree plantations.     

Frontiers of commercial real estate portfolio performance: Are sector-region-efficient diversification strategies a myth or reality?

This paper departs from the traditional optimisation methods used to evaluate portfolio performance. Rather, the Stochastic Frontier Analysis approach is used to econometrically determine the benchmark real estate portfolio frontier and subsequently assess the gains from diversifying real estate portfolios along regional and sectoral dimensions in the UK. Portfolio specific inefficiency measures are obtained which indicate whether a portfolio is efficiently diversified and therefore places on the benchmark frontier and if not, the degree to which performance can be improved is quantified. Portfolio-specific efficiencies average at 85–91%, indicating scope to further improve performance. Further, diversification be it on a sectoral or regional dimension, contributes to significantly lower variability in portfolio efficiencies.     

农村产权抵押融资的风险防控机制研究——基于重庆的实践

论文首先理清了农村产权抵押融资各环节上的主要风险。接着,通过对重庆市11个区县的实地调研,找出了各种风险的主要成因,以及防控这些风险的成功经验。最后,针对农村产权融资的不同需求,建立了以农村资金互助社为核心的小额融资风险防控机制,和以政府为基础层,金融机构和农户为核心层,担保机构、保险机构和评估机构为保障层的大额融资风险防控机制。为我国农村产权抵押融资风险防控提供参考。     

Economic development and Indigenous Australia: contestations over property,institutions and ideology*

Economic development for remote Indigenous communities cannot be understood unless the relative importance of customary activity, potentially enhanced by native title legal rights in resources, is recognised. The present article uses a three‐sector hybrid economy framework, rather than the usual two‐sector private (or market) and public (or state) model to more accurately depict the Indigenous economy. Examples are provided of the actual and potential significance of the customary sector of the hybrid economy. Focusing on the concepts of property and institutions, it is demonstrated that significant local, regional, and national benefits are generated by the Indigenous hybrid economy. A role is foreshadowed for resource economists and the New Institutional Economics in quantifying these benefits, including positive externalities, so that they might be more actively supported by the state.     

The impact of farmland property rights security on the farmland investment in rural China

This paper aims to estimate the effect of the security of farmland property rights on land-attached and long-term investment. Based on the data from a nationally representative sample with 5887 plots of 1175 households among 5 provinces in rural China, we adopt Probit, Ordinary Least Squares / Tobit, and the household fixed effect methods to yield the consistent results. The results show that the security of farmland property rights have significant and positive effects on the possibility and amount of the overall farmland investment. However, it has different effects on the different types of investments. The share of farmland retained significantly affects the investments in soil quality improvement and changing use of the plots but does not affect the investment in water conservancy facilities. The types of farmland property rights affect investments in water conservancy facilities and changing use of plots, but do not affect investment in soil quality improvement. The findings imply that the Chinese government should be the principal investor in water conservancy facilities and enlarge the operational scale of farmland by facilitating farmland transfer to increase private investment.     

Systematic and Nonsystematic Risks in Agriculture

A Farm Sector Capital Asset Pricing Model (FSCAPM) is developed to examine systematic agricultural risks. Beta coefficients are derived for various agricultural activities and portfolios. The results reveal that for many agricultural commodities and crop mixes the amount of systematic risk is high. Moreover, for the majority of commodities and crop mixes examined, farmers are being undercompensated for the level of systematic risk they are accepting. It is suggested that off-farm investment might be a feasible approach to reducing systematic risk within agriculture.
Un modèle simulant le processus de détermination de la valeur de l'actif dans le secteur agricole est développé pour permettre l'étude des risques systématiques dans ce secteur. Les coefficients mesurant le niveau relatif de risque systématique sont ensuite calculés pour différents produits et plans de productions. Les résultats montrent que pour plusieurs pro-duits agricoles et plans de production, les niveaux de risque systtmatique sont Clevés. De plus, pour la majoritt des produits et plans de production étudiés, les producteurs agricoles ne sont pas rémunérés adéquatement pour prendre ces risques. Finalement, l'investissement de capitaux à l'exttrieur du secteur agricole est présenté comme un moyen pouvant permettre de réduire le niveau de risque systématique dans ce secteur.     

Predicting uncertainty: the impact of risk measurement on value of real estate portfolios

This paper presents a theoretical framework for an assessment and valuation of real estate assets and funds, based on modern stochastic discounted cash flow (DCF) models, which accurately captures the nature of related risks. We show that an accurate risk-adjusted valuation is particularly difficult for real estate investments, due to practical limits to diversification and difficulties in approximating total risk with systematic risk. We develop a risk assessment framework that includes idiosyncratic risk but focuses on insolvency risk related to a specific cash flow profile. We also present a methodology of rating this risk, using forecasts and simulations. We conclude that simulation techniques are a valuable tool in property risk assessment. Further, we show that cost of capital and value of assets depend on diversification of specific risks, investors can achieve in their portfolios.     

Gains to Research in the Presence of Intellectual Property Rights and Research Subsidies

The influx of private investment into crop research, which has accompanied the establishment of intellectual property rights (IPRs) and the introduction of biotechnology, suggests high rates of return. However, the empirical analysis of the canola research sector shows a decline in the total net return to research during a period of increased investment, indicating that net marginal returns to research have been negative. The indication of immiserizing research suggests that the combined effect of IPRs and public incentives has driven the quantity of research beyond the socially optimal level.